Count on Counting Your Change
Smart shopping might begin with a hunt for bargains, but it should end with a review of your transactions. To drive this message home, encourage your kids to unload the groceries and simultaneously compare price tags with the receipt. If they find a mistake, let them hold on to the refund.

Play “The Stock Market Game™”
Get online and go to www.smg2000.org. There you’ll find “The Stock Market Game.” Sponsored by the Foundation for Investment Education, it lets kids in grades 4 through 12 assemble and monitor a hypothetical $100,000 portfolio for 10 weeks.

Make a Matching Contribution
Want to motivate a child to save? Just offer to “match” a portion of each savings account deposit he or she makes. And don’t be afraid to set a few rules — for example, matching contributions can’t be spent on candy or pizza.

Take Stock of Household Products
If your child is old enough to understand the concept of stocks and publicly traded companies, go through the house together and identify favorite items, such as computers and clothing. Then look up the manufacturer’s stock price and monitor it over time.

© 2010 Standard & Poor’s Financial Communications. All rights reserved.

Don’t just take my word for it, though. Look at the numbers: The median income in households of Americans who are at least 65 years old is under $25,000, whereas the median household income for Americans under 65 is more than double that amount.*

Is your portfolio on a course that’s destined to lead to a retirement income shortfall? Consider these strategies that can help improve your long-term outlook.

During Your Working Years?

Determine an appropriate time frame for applying for Social Security benefits. If you plan to apply before your so-called “full retirement age,” then you can expect to receive lower monthly benefits. Delaying your application could increase your benefits. Detailed information about your specific situation is available in the Social Security Statement mailed to you each year about three months before your birthday. Contact Social Security at least three months before retirement to apply for benefits.

When You Reach Retirement?

Make arrangements for your retirement account distribution strategies. If you participate in a workplace retirement plan, contact your employer’s human resources office to learn what withdrawal options are available to you. Once you have that information handy, you’ll need to decide whether to begin withdrawing money from your taxable accounts first or from tax-deferred accounts first.

Keep in mind that the IRS requires most retirement savers to begin taking withdrawals known as required minimum distributions (RMDs) from employer-sponsored retirement accounts and traditional IRAs after reaching age 70½. If you don’t take your RMDs, you could be forced to pay substantial tax penalties. RMD rules recently became less complex, but it’s still important that you understand them and implement an appropriate distribution strategy.

All Retirement Investors?

Review your post-retirement medical insurance needs. For example, you might want to think about purchasing coverage to supplement Medicare benefits.

If you have made all eligible contributions to other qualified plans, then you may also want to consider funding an annuity now in order to receive a guaranteed income stream later in life.**

Your retirement security is very important. A smart first step to keeping your retirement strategies on track is to contact a qualified financial professional. Contact me at 847.382.2600 or by email at josepha.lyons@lpl.com to make that smart first step.

*Source: AARP, August 2005.

**Fixed annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59½ are subject to 10% IRS penalty tax and surrender charges apply. Guarantees are based on the claims paying ability of the issuing insurance company.

© 2010 Standard & Poor’s Financial Communications. All rights reserved.

Unless legislative action occurs, 2012 marks the last year of a historically low tax environment. Beginning in 2013, income taxes are scheduled to increase – for some taxpayers in higher tax brackets that increase will be substantial:

Tax rates reflect highest marginal rate and incorporate additional taxes related to the health-care reform law. Health-care-related taxes include a surtax of 3.8% on net investment income and additional .9% payroll tax affecting single filers with income in excess of $200,000, and joint filers with income in excess of $250,000.  Assumes employee payroll tax rate of 4.2% is extended for tax year 2012.  If no extension occurs, the employee portion of the payroll tax will be 6.2% in 2012.

Additionally, the federal exemption amount for estate and gift taxes is scheduled to revert to $1 million in 2013 (from $5 million in 2012).

Ten tax-smart strategies to consider in 2012:

1. Accelerate income where feasible

Taxpayers who expect to remain in higher tax brackets going forward may want to consider reporting more income on their tax return in 2012.  This can be accomplished through a number of methods including converting Traditional IRA assets to a Roth IRA, realizing more income from a  business or partnership, or exercising certain stock options.

2. Complete large financial transactions

Rising long-term capital gains rates and a new Medicare surtax of 3.8% on net investment income may prompt investors to consider completing large financial transactions – the sale of appreciated stock, real estate, or businesses – before 2013 to take advantage of the low 15% tax rate.

3. Accelerate tax deductions into 2013

With the return of income phase-outs on itemized deductions in 2013, clients in higher tax brackets should consider accelerating certain tax deductions into 2012 if possible.  Examples include prepaying mortgage interest, prepaying local property taxes, and expediting elective medical procedures that may result in significant out-of-pocket expenses.  However, taxpayers should be aware that, if subject to the alternative minimum tax (AMT), some of these deductions will be reduced or negated.  For example, the deductions will be reduced or negated.  For example, the deduction for local property taxes is negated if AMT applies while the mortgage interest deduction is still available regardless of AMT status.

4. Gift appreciated assets to family members in lowest tax brackets

In 2012, taxpayers in the lowest two brackets (10% and 15%) benefit from a 0% rate on long-term capital gains and qualified dividends.  Investors contemplating gifts to family members may be well served to gift appreciated stocks or mutual funds instead of cash.  If the recipient is in one of the lowest tax brackets, the asset could be subsequently sold without any capital gains tax (before the end of 2012).  Note that this strategy is limited depending on the size of the capital gain.  For example, if the gain is large enough, that amount may “push” a taxpayer above the 15% income tax bracket where the higher 15% capital gains rate will apply.

For reference, the 15% bracket begins at income levels of $35,350 for single filers and $70,700 for joint filers.

5. Maximize retirement plan contributions

As federal budget deficits have worsened, there is increased scrutiny on tax benefits, including the preferred tax treatment of retirement plan contributions.  Plan participants may not want to assume that these tax benefits will be in place forever.  In fact, there has been recent congressional testimony on deficit reduction efforts that would reduce retirement plan contributions to certain levels based upon a percentage of income.

6. Review estate planning documents and strategies

It is critical for investors to review estate plans in conjunction with changes in the tax environment.  For example, as the federal exemption amount increased to $5 million in 2010, in many cases trust provisions had to amended to ensure that potential unintended consequences were avoided.  Additionally, investor’s estate plans may be well positioned for the federal estate tax, buy may not be designed effectively to avoid the impact of death of inheritance taxes at the state level.

7. Consider significant charitable gifts

Affluent clients considered gifts may wish to move forward in 2012 while generous tax benefits still exist.  Given escalating federal budget deficits and increased costs for entitlement programs, the deduction for charitable giving has faced scrutiny from lawmakers.   Additionally, it is reasonable to assume that the estate tax environment could get worse in the future as the federal government looks to generate more tax revenue, so removing assets from estates now may have advantages.

8. Make lifetime gifts

Individuals can gift up to $5 million over their lifetime without incurring federal gift tax.  With this limit reverting to $1 million in 2013, removing assets out of larger estates by making large gifts now may make sense.  Another reason for lifetime gifting is that appreciation of transferred assets post gift is also outside of the estate.  That makes gifting assets that may have depreciated in value due to the current economic environment, such as real estate or stocks, an attractive option.

9. Consider advanced wealth transfer strategies

Individuals and families with more complex estates should consider advanced strategies to transfer wealth efficiently.  Examples include Family Limited Partnerships (FLPs) or Grantor Retained Annuity Trusts (GRATs).  GRATs are especially attractive currently as a result of low IRS interest rates.

10. Explore options with life insurance trusts to create liquidity at death

With the possibility of estate taxes increasing, families with sizable assets may want to explore life insurance as a means to create liquid assets at death to pay estate taxes.  Proper planning with life insurance can help families avoid liquidating other, non-liquid property such as real estate or family-owned businesses during less-than ideal personal or economic circumstances.

Consult a qualified tax or legal professional and your financial advisor to discuss these types of strategies to prepare for the risk of higher taxes in the future.  Personal circumstances vary widely so it is critical to work with a professional who has knowledge of your specific goals and situation.

This information is not meant as tax or legal advice.  Please consult with the appropriate tax or legal professional regarding your particular circumstances before making any investment decisions.

“We congratulate Joseph Lyons for achieving this prestigious recognition, which is based on how successful advisors are in growing their businesses by delivering services and solutions to their clients,” said Bill Dwyer, President of National Sales and Marketing for LPL Financial. “We believe members of the Patriot’s Club are among the premier financial advisors in our industry. They serve as trusted resources and counselors for their clients and their communities.”

Joseph Lyons is affiliated with LPL Financial and provides access to independent financial planning services, investment advice and asset management services to over 200 clients in the Chicagoland area.

About LPL Financial

LPL Financial is one of the nation’s leading financial services companies and largest independent broker-dealer (based on total revenues as reported in Financial Planning magazine, June 1996-2010). Headquartered in Boston, Charlotte, and San Diego, LPL Financial and its affiliates offer industry-leading support to more than 12,000 financial advisors and over 750 financial institutions who, in turn, provide independent financial advice to millions of Americans.

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* Based on total revenues, Financial Planning magazine, June 1996-2010

Member FINRA/SIPC

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