Your Year-End Financial Checklist

As we approach the end of 2010, Santa should not be the only one making a list and checking it twice.  With all of the changes in income and estate taxes poised to take effect on January 1, 2011, it should come as no surprise that reviewing your family’s finances is even more critical this year-end.  Below is a small sample of items to consider.

In General 

• How is that Emergency Fund holding up?  The general rule of thumb is you should have three to six months of living expenses saved in a very liquid, easily accessible account.  Don’t have an emergency fund?  Start devising a savings plan to start building one right away.

• Plan a holiday spending budget to avoid overspending as we enter the holiday season.  Ideally, the spending budget you determine appropriate should be funded with cash rather than relying on credit cards.  The best holidays are those that don’t have statements showing up in your mailbox in January.

• Review your credit report for inaccuracies and accounts that should be closed but which remain open.  Everyone is entitled to one free report from the three major reporting agencies, Experian, Equifax, and TransUnion.   Schedule to pull one every four months, and you’ll provide year-round monitoring for your family.

Investments

• Be cautious about making additional investments in your non-retirement investment accounts, especially when dealing with mutual funds.  Funds are required to distribute capital gains and dividends to shareholders by the end of the year.  If you invest before the distribution date, you will receive your share of capital gains and dividends the fund recognized during all of 2010 – even if you only owned the fund for one day.  And that could wreak havoc on your income taxes.

• Required Minimum Distributions (RMDs) are back for 2010.  Failure to make your RMD results in a 50% penalty on any amount you did not take this year.  Not sure if you’re required to take a RMD?  Contact your tax advisor or MTR Financial Services for guidance.

Income Taxes

• As it stands right now, income tax rates are set to increase to the pre-Bush Tax Cuts rates.  Also increasing are the tax rates for capital gains and dividend income.  As odd as it may sound, it may benefit you to accelerate income in 2010, including selling investments with large gains.  Additionally, deferring certain itemized deductions such as charitable giving and real estate taxes into 2011 could result in a more efficient income tax scenario if the impending tax changes hold true.

• Check to see if you need to update your W-4 filing for 2011.  A change in marital status or a birth of a child in 2010 will normally result in the need to update your W-4.  Also, if you’re consistently getting large refunds with each tax filing, you may want to consider updating your W-4 as well.

Estate Issues

• Unless Congress acts before year-end, the estate tax will re-appear in 2011.  Each individual will have a $1 million exclusion, and the top tax rate on estates will go to 55%.  Those who haven’t had to worry about estate taxes in the past may find themselves subject to larger than anticipated estate taxes due to the decreased exemptions.  Consult with your estate planning attorney or MTR Financial Services for guidance on how to best address your potential need for new wills and estate documents.

• With the impending changes in the estate tax exclusion amounts for 2011, proper beneficiary designation for your retirement accounts and life insurance policies is critical.  Failure to review your current beneficiary designations could create additional tax for your heirs.

Insurance

• If you have a Flexible Spending Account (FSA) you need to be aware of a key change in benefits that will begin January 1, 2011.  Starting on this date, over-the-counter medication will only qualify for reimbursement if prescribed by a doctor.  The only exception is for insulin bought without a prescription.

We’ve all heard that a little planning can go a long ways.  With all the changes facing us in 2011, this adage certainly holds true.  Consider contacting MTR Financial Services for any guidance you may need in your overall financial plan.