Tips for getting ready for your year-end review

Published 12:00 am Sunday, December 12, 2010

The last few months of a year often prompt people to think about goals they want to pursue in the coming year. If your goals include financial issues, an annual review with your financial advisor is an excellent opportunity to focus on what you need to do to pursue them.

Every person’s goals are unique, but you may want to think about the following areas when preparing for your review.

Building retirement assets

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Your advisor can help you calculate how much you need to save for your later years. If you are coming up short, funding an IRA may help you close the gap. For the 2010 tax year, you may contribute a maximum of $5,000 to a traditional or to a Roth IRA — plus a $1,000 catch-up contribution if you are age 50 or older. If you haven’t yet made your 2010 contribution, you may do so up until April 15.

These contribution limits will remain unchanged for the 2011 tax year.

Preparing for

Education

College costs continue to increase faster than the rate of inflation, which presents a challenge for academically minded families. In addition to saving as much as you can afford and pursuing financial aid, you may want to consider a Coverdell Education Savings Account — but you’ll want to do so before the end of this year.

Coverdell accounts currently permit you to save $2,000 annually per beneficiary. Withdrawals are taxfree as long as they are used for qualified expenses associated with elementary, secondary or higher education. However, like many other tax provisions established during the Bush Administration, Coverdell ESAs will revert to their pre-2002 annual contribution limit of $500 per beneficiary on Jan. 1, unless Congress acts to extend the law.

What actions should you consider now? If you currently have a Coverdell ESA, be sure to make your current-year contribution by Dec. 31.

Similarly, if you need to withdraw funds from a Coverdell account to cover qualified education expenses for the current school year, do so by Dec. 31.

Evaluating your estate

When crafting your financial plan, be sure to consider whether your investments complement the provisions of your will. As part of this exercise, your financial advisor can help you review the potential estateplanning benefits of stretch IRAs, Roth IRAs and other accounts. Don’t forget to review beneficiary designations to make sure they are up-to-date.

Assessing your asset allocation

Last but certainly not least, your financial advisor can make sure your portfolio’s mix of assets — stocks, bonds and cash investments — is on target given your risk tolerance and time horizon. A more aggressive mix may be appropriate for longer-term goals that are 10 or more years away, while being more conservative may be desirable for shorter-term objectives.

Key Smith is an associate with Henry Wealth Management in Natchez. All securities are offered through LPL Financial, Member FINRA/SIPC.