Newsletter (last updated: 6/4/2012)
OFF ON THE RIGHT FOOT IN 2012
look at some financial changes & the opportunities they may present.
Every year brings
some financial change, so here are some relevant changes relating to
investment, tax and estate planning for 2012.
plans. 401(k), 403(b) and 457 plan annual contribution limits
rise slightly to $17,000, and you can contribute an additional $5,500
to these accounts if you are 50 or older this year. IRA contribution
levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you
will be 50 or older in 2012.
As you strive to
contribute as much as you comfortably can to these accounts this year,
you will probably notice some changes with the retirement plan at your
workplace. In 2012, retirement plan sponsors (i.e., employers) will
have to note all of the fees and expenses linked to the funds in the
plan to plan participants. So if you have a 401(k) or 403(b), you may
notice some differences in the disclosures on your statements and you
will probably notice more information coming your way about fees. There
is also a push in Washington, D.C. to have financial companies provide
lifetime income illustrations on retirement plan account statements,
projections of your expected monthly benefit at retirement age.
Wealthy Americans are set to face greater income tax burdens in 2013,
so 2012 may be the last year to take advantage of certain factors. For
example, the top tax bracket in 2013 is slated to be at 39.6% instead
of the current 35%. This year, capital gains and dividends will be taxed
at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets.
In 2013, the qualified capital gains tax rate is scheduled to rise to
20% and qualified dividends will be taxed as ordinary income. So taking
a little more income in 2012 could be smart.
In 2013, the wealthiest
Americans are supposed to be hit with new Medicare taxes: a new 3.8%
levy on unearned income (such as capital gains, income from real estate,
dividends and interest) and a new 0.9% tax or earned income. So next
year, the truly wealthy could effectively face in the neighborhood of
45% federal taxes.
IRS is planning to limit itemized deductions for upper-income taxpayers
in 2013. A phase-out will also apply for the personal exemption deduction.
gift taxes. At the end of 2012, some very nice estate tax breaks
could sunset. Barring action by Congress, 2013 could see a 20% leap
in the federal estate tax rate from 35% to 55%. The individual estate
tax exclusion (currently $5.12 million) is scheduled to be reduced to
As we have unified
gift and estate tax rates, those numbers and percentages also apply
to gift taxes. That is, from 2012 to 2013 top federal gift tax rate
is set to go from 35% to 55% and the lifetime gift tax exemption amount
is scheduled to fall $4,120,000 per individual to $1 million. The annual
gift tax exemption is $13,000 per recipient in 2012; there is an exemption
limit for qualifying educational and medical payments. If you want to
gift relatives or friends, you may want to avoid procrastinating for
another very good reason: when you make such a gift early in a year,
the recipient will gain both the principal and any appreciation tied
to the gifted asset in that year.
Speaking of gifts,
we said goodbye to charitable IRA gifts in 2011. The IRA charitable
rollover, a boon to non-profits and a handy tax deduction option for
taxpayers older than age 70½, was not extended into 2012, not
even temporarily as a sweetener to the payroll tax extension bill. There
is hope it will be back. Two bills have been introduced in Congress
with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen.
Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep.
Earl Blumenauer (D-OR). The proposed legislation would let IRA owners
start making charitable IRA gifts at age 59½ and remove the $100,000
limit on the rollovers.
The limits on the
generation-skipping transfer tax could change, too: assuming the Bush-era
tax cuts do sunset, the GSTT rate would jump from 35% this year to 55%
in 2013, with the GSTT exemption falling from $5,120,000 per person
this year to roughly $1.3 million per person next year.
So given all these
changes, it might be wise to meet with the financial professional you
know and trust early in 2012 as you strive to start the year off on
the right foot. You have until April 17 to file your federal return,
but you can plan now.