Five Financial Moves You Might Make Before Year-End
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management December 10, 2012 09:00 AM
Sure, you may be busy buying gifts for the holidays. But while you're thinking of others, also give some thought to yourself--especially your personal finances.
- Review your investments. Has this year's strong stock market tilted your portfolio too much toward stocks? If so, consider rebalancing by taking some profits, which may be taxed at 2012's 15% maximum federal long-term capital-gains rate. Unless Congress acts, that rate could climb to 20% in 2013.
- Prepare for higher taxes. If federal income-tax rates do indeed rise next year, municipal bonds--which often pay income that's tax-free at the federal level and sometimes at the state level as well--may become more appealing. You might also talk to your tax advisor about accelerating income into 2012, so it will be taxed at this year's low federal rates. Keep in mind that this additional income could be subject to the AMT.
- Consider gifting. Think about gifting to family members before year-end, assuming you can afford it. In 2012, you can give up to $13,000 to as many people as you wish without worrying about the federal gift tax. If you're wealthy and considering gifting a large sum, you might talk to a qualified attorney about taking advantage of the current $5.12 million lifetime gift-tax exemption. That exemption could drop to $1 million in 2013 unless Congress and the president reach an agreement.
- Look into a Roth IRA conversion. If you plan to convert part or all of your traditional Individual Retirement Account to a Roth IRA, you might make the switch now, so you can pay the conversion tax at this year's potentially lower federal tax rate. Make sure you have money outside your IRA to pay the resulting tax bill.
- Boost your 401(k) contribution. You may still have time to increase your 2012 payroll contribution to your employer's 401(k) plan. Not only would that bolster your retirement nest egg, but also it could lower 2012's tax bill by trimming your taxable income.
INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
For additional information, go to www.irs.gov
Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Depending on your state of residency, some bonds may be exempt from state and local taxes; however, interest may be subject to the federal Alternative Minimum Tax.
Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer's credit rating, or creditworthiness, causes a bond's price to decline. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.
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