Newsletters 2010 Newsletters 2010 Planning (1/10)
Friday, 15 January 2010 17:41
With so many potential tax laws and financial issues in flux, 2010 may prove to be an especially difficult year to navigate one’s financial plan. Here are some of the areas to be aware of:
Roth IRA Conversions: 2010 marks an important year with regard to how your IRA is treated for long-term tax planning, income planning and estate planning. The 2005 Tax Increase Prevention and Reconciliation Act (TIPRA) eliminates the $100,000 income ceiling for Roth IRA conversions, presenting higher earners with a prime, first-time opportunity to roll investments from a traditional IRA into a Roth IRA.
In addition to the removal of the income provision, there is a special tax incentive for those that convert in 2010. While investors will still have to pay ordinary income taxes on any deductible contributions and investment earnings that are converted from a traditional retirement account into a Roth IRA in 2010, the federal law allows taxpayers to spread the subsequent tax bill over the following two years, 2011 and 2012, with 50% due each year.
2010 Estate Tax Repeal: Since attempts to extend the 2009 $3.5MM estate tax exemption failed in the Senate, the estate tax has been repealed (however temporary that may be) and is presently scheduled to be reinstated to pre-2001 levels in 2011. Unless a deal is reached and made retroactive, families that must resolve their estate while the estate tax is in repeal will indeed have no estate tax, but heirs will face capital gains exposure for an estate north of $1.3MM and $3MM for the surviving spouse. Should compromise not be reached, the return of the estate tax to pre-2001 levels would be yet another marker of an incompetent Congress.
Health care: As the healthcare reform debate wears on, the Senate and House will attempt to reconcile a massive 2,000 page plus bill set to impose penalties, regulate prices and mandate health insurance. If the bill does pass, planners will scramble to forecast what changes might be expected over the coming years. Current recipients of Medicare may see their benefits decline and we would not rule out the possibility of Social Security reform to be placed back on the table.
Mortgage Rates: With the Federal Reserve upholding its promise to keep rates low for an extended period, 2009 presented consumers and businesses alike with a once-in-a-lifetime opportunity to improve their collective balance sheet. As 2010 is off to a running start, that window of opportunity may be set to close as rates are rising into the 5% plus range. With the economy on the rebound and the Fed’s mortgage purchase program set to expire in March, interest rates are likely to rise further in the coming months. Rates are still very low by historical standards. Now remains an opportune time to consider refinancing.
Credit CARD Act 2009: In 2009, President Obama signed into law the Credit CARD Act of 2009, enacting some of the most sweeping credit card reform in over 40 years. Consumers that rely on credit cards are supposed to be beneficiaries of the bill, but we advise being watchful of changing terms and conditions as card companies adjust themselves to maintain profitability in light of the new regulation.
Income and Capital Gains Tax: Unless compromise is reached, income and capital gains taxes will revert to their higher, pre-2001 levels in what will amount to the largest tax hike in history. Tax planning will be especially tricky this year and may warrant consideration to realize gains before 2011.
While the many moving parts will make financial planning a more daunting process in 2010, we look forward to working with you to help identify solutions that meet your specific needs.
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