Year-End Planning

Many of you e-mailed me that you wanted to start this year with a clean slate and get your financial household in good shape.

Well, to get on the right financial track, you have to make it a priority and you will need a written plan.

The first step to financial freedom is building good habits. This starts with good record keeping, like getting in a habit of filing away your statements immediately and knowing what to keep and for how long. So, here is the rundown:

These are items you want to keep forever: your wills and power of attorneys, birth certificates, marriage license, military records, passports, divorce decree, stock certificates, life insurance policies, and property titles. You may want to invest in a small fire proof safe to store these important documents.

For at least 7 years, you want to hold on to your income tax returns, annual payroll check stubs, canceled checks, annual bank and investment statements, and titles for your vehicles.

Keep for 3 years papers that confirm buying or selling your stocks and your credit card statements.

And if you prefer to store your financial documents on your computer, make sure to backup your files.

Lastly, I have some great news. Starting this and every Thursday from 4:30-5pm, I will also appear on krdo news radio’s “drive home” with Dan cochell and greg neft. So make sure to tune in every Thursday and call in with your questions. I will answer them on air.

I receive many emails from you asking if Traditional IRA is better than Roth IRA. It generally makes sense for many people to put money into Roth IRA as opposed to Traditional IRA and here is why. With a Roth IRA, any earnings can be pulled out tax-free if you are at least 59 and have had the Roth at least five years.

So, why wouldn’t everyone convert their Traditional IRA into Roth? There have been two challenges until now that would deter many people from converting. They had to meet certain income limits to be eligible and they had to pay taxes on the converted money.

Thanks to the new tax rules, there is a small window of opportunity only in 2010, the Government will be lifting the income limits so that everyone is eligible to convert their Traditional IRA money into Roth, and it will also allow you to spread out any tax due on the converted money over the next 2 years.

Let’s say you convert your traditional IRA, with a value of $20,000, to a Roth IRA in 2010, instead of paying tax on the entire $50,000 that year, under the new rules you can pay 50% of the tax in 2011 and the remaining 50% in 2012.

While this may be a good opportunity for you, the conversion rules can be very tricky, so be sure to consult your financial advisor before you go forward with this.

Again, this is to remind you not to miss our big contest. Starting in January, email me about your personal financial struggle and the financial resolutions that you laid out for yourself for 2010. At the end of month, we will select two viewers whom I will work with to develop financial recommendations to put these resolutions into action.

Ready not to spend a fortune on holiday gifts? It can be done for your family and friends.

The holiday season is now in full swing. Let me share with you a few creative gift giving ideas from some of our viewers.

Two families have decided to exchange their services instead of gifts. This involves, cooking a meal, changing the oil and washing and waxing the car, giving a manicure, performing maintenance on a computer, painting a room, and even including the kids to pet sit and baby sit.

Here is another great idea. There are many struggling families out there. One family has decided that instead of spending money to buy gifts for each other, they would sponsor a family in need for the holiday season. You can do the same by donating food, clothing and gifts to a designated family through a charitable organization. Couples can even make a donation to their favorite charities in each other’s names.

Another viewer wrote that he would invite a military family over for a holiday meal. What a great way to say thanks to our military for their service to our country.

On a different note. Let me tell you about how you can participate in an exciting contest. Beginning in January, write me an email about your personal financial struggle and the financial resolutions that you laid out for yourself for 2010. At the end of January, we will select two viewers whom I will work with to develop financial recommendations to put these resolutions into action.

Thank you for joining me for the 2nd part of our year-end money tips.

Of course, healthcare is on all of our minds these days, so let’s go with that topic, and talk about the different ways you can pay for your medical expenses.

The two popular savings vehicles are health savings account and flexible spending account. They both allow you to save money with pre-tax dollars and as long you use the funds for ‘qualified medical expenses’, the money spent is tax-free. Another really neat thing is that you can use these accounts to pay for expenses that may not even be covered by your health insurance, like your over-the-counter medicines.

Before we take a look at how this topic fits into your year-end planning, let’s highlight a couple of main differences between these two accounts.

Health savings account is owned and controlled by you. It means that if you do not use the money in this account by the year end, any unused balance will just roll over into the next year. Also, if you are collecting unemployment benefits, you can use these dollars to pay your health insurance premiums.

Flexible spending account on the other hand, is considered “use it or lose it” account because the money in this account will be lost if you don’t use it by the year end or if you lose your job.

Bottom line is – if you have a flexible spending account and you have been putting off any medical or dental work, you may want get it done before the year ends!

as always, you can drop me a line to ask about any other money issues on your mind.

The end of the year is just around the corner, so let’s do a rundown of financial tips before the year ends.

First, let’s talk about your investments and retirement plans.

I suspect your investments have been on a roller coaster ride this year. Some of your investments have done better, some worse and I am willing to bet that some are out of balance from where they began earlier in the year. If your goals have not changed, it is important that you restore them to their original allocation. It’s called re balancing your portfolio and you should do it at least once a year with your financial advisor.

This is also the time to look at your budget for 2010. Adjust your monthly numbers to reflect the reality of your spending this past year. Don’t forget to include the odd stuff like car registration, gifts or school photos – things that don’t come up each month. This will give you a good projection moving forward into the new year with some control.

Finally, if you had to tap into your 401k to cover any shortfall in your budget or if you had any debt forgiven by your credit card company, talk to your financial advisor to get a quick estimate of any taxes or penalties that you may owe next year.