Planning for Year-End 2008

As another year-end approaches, we remind you of certain year-end transactions that we stand ready to help you execute:

Income Taxes

Year-end State Tax Payments – If we are not ourselves preparing your taxes, we will be in touch with your tax preparer in December about any issues that should be taken into consideration when preparing tax projections and determining your optimal tax payment schedule. In addition, we will forward tax information for the investment portfolios that we manage for the full year 2008 to your tax preparer in February 2009. Please remember to forward any 1099s, K-1s, and other tax records you receive to us or directly to your tax preparer. If you changed your tax preparer since last year and/or have not already provided us with your new tax preparer’s contact information, please do so as quickly as you can.

Charitable Contributions – Appreciated long-term capital gain assets, such as stock or mutual fund shares you’ve owned for more than a year, are ideal assets to contribute to charity because you can deduct these assets at fair market value without paying tax on the appreciation. If you have charitable intentions but have not yet identified the charity you wish to benefit, you can donate securities to a charitable gift fund, like the ones available at Charles Schwab & Co., Inc., Vanguard, or Fidelity Investments. By doing this before December 31, you can secure your available charitable deduction for this year and direct the gift (of amounts as small as $100) at a later, more convenient time.

Gifts to Family Members – The current tax law allows each person to make gifts of $12,000 per recipient, each year, without gift tax. A married couple can give up to $24,000 per recipient per year. If a recipient is in a very low income tax bracket, it may make sense to give highly appreciated investments rather than cash since the recipient can sell the investment and may only pay 5% capital gain tax. However, a cash gift is still usually the best if you want to maximize the benefits to the recipient. Many clients with young children or grandchildren may be able to give up to $120,000 (for a married couple) to fund §529 College Savings Plans. These gifts use the same $12,000 per person, per recipient annual gift tax exclusion but permit a 5-year “bunching” to get to a much greater initial amount. If you haven’t already taken advantage of these opportunities for 2008, there is still some time to do so.

Retirement Plans

Retirement Plans for the Self-employed – If you have self-employment income (from consulting services or corporate or non-profit boards), our planning staff has discussed with you your eligibility to contribute to your own retirement plan. If you haven’t already established a specific retirement plan, we can help you decide which of the several plan choices is appropriate for you. Most of these plans must be established no later than December 31, even if actual funding can occur later.

Roth IRA Conversion – If your adjusted gross income (AGI) is less than $100,000 (whether for single individuals or married couples filing jointly), you can convert part or all of your traditional IRA to a Roth IRA by December 31. Taxes must be paid on the conversion but subsequent earnings and distributions are tax-free in a Roth IRA. Your client service team will help you determine whether this opportunity is available to you and, if so, if that strategy is appropriate to pursue. In 2010, this opportunity is currently scheduled to be available, regardless of the amount of your AGI.

Catch-up 401(k) and Deductible IRA Contributions – Individuals over age 50 and those who turn 50 during 2008 are eligible to make “catch-up” contributions to retirement plans. The 401(k) catch-up contribution is $5,000 and the traditional and Roth IRA catch-up contribution is $1,000. If you meet the eligibility requirements and haven’t already made the 401(k) catch-up contribution, please contact your 401(k) plan administrator to make the election as soon possible so the extra contribution is made before the year-end. The catch-up contribution to an IRA can be made as late as April 15, 2009 but we recommend doing so early to avoid confusion as to the applicable tax year.

Required Retirement Plan Distributions – Clients who turn 70½ this calendar year are required by law to take a first minimum distribution from their retirement accounts. The first required minimum distribution must be taken no later than April 1 of the year following the calendar year in which one turns 70½, so, “first timers” could wait till April 1, 2009. Still, it is almost always best to get this done by December 31 of the current year so that you are not required to take two distributions in the following year.

In the Emergency Economic Stabilization Act, Congress extended the option for taxpayers over 70½ to make charitable gifts for an amount up to $100,000 directly from an IRA (neither a SEP nor a SIMPLE IRA qualify) to a public charity (not a donor advised fund, private foundation, or supporting organization). These gifts can count toward the required minimum distribution for the year. There is no tax deduction, but there is no income tax on the amount of the distribution that is given to charity. If you are interested in this option, please let us know and we will be in contact with you to coordinate distributions.

AMT Relief – Another feature of the Emergency Act was to provide a further short-term mitigation of the application of the Alternative Minimum Tax and to provide for a refundable credit for Minimum Tax Credits more than three years old. Some clients may have an opportunity here to capture otherwise unusable AMT credits.

Your client service team is eager to work with you to plan for and then execute these transactions as early as possible to avoid any year-end rush.

Young Kim,
Director of Investment Operations

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