QUARTERLY NEWSLETTER

Read Financial Planning Reminders Quarterly

• Newsletter - Spring 2012
• Newsletter - Winter 2011
• Newsletter - Fall 2011
• Newsletter - Summer 2011

Financial Planning Reminders

Vol. 12, Issue 1, Spring 2012

Tax and Estate Planning Considerations for 2012  

For the first time in several years, contribution limits for a few retirement plans have increased in 2012.  While the limits for traditional IRAs and Roth IRAs remain the same as in 2011, 401(k) and 403(b) contribution limits have increased from $16,500 to $17,000 in 2012, plus a $5500 catch up for those over 50 years of age.   For SEP-IRA accounts, the contribution limit has increased from $49,000 to $50,000.  

Long-term capital gains tax rates will remain at 15% for clients in federal tax brackets over 15% during 2012.   However, due to the continued and ongoing national budget deficits, these former “Bush Tax Cuts” may not be extended into 2013.  As such, both long-term capital gains and ordinary income tax rates may increase.  As a result, we strongly suggest that clients with large gains in their portfolios consider taking some of those gains this year while these rates are low.  As your investment advisor, we will be looking for opportunities to harvest these gains by year end.  If you would like to further discuss taking additional gains in your portfolio this year, please call us.    

Similarly, the combined amount for the estate tax exemption and lifetime gift tax exemption is currently $5.12 million for 2012.  In the past, the lifetime gift tax exemption, which allowed for gifting during one’s lifetime, was limited to $1 million.  The reunification of both lifetime gift tax and estate tax exemptions creates a unique planning opportunity for clients with net worths above $10.24 million (for a couple) or $5.12 million (for a single person).  These exemption amounts are scheduled to expire at the end of 2012, and thus far Congress has provided no indications of what estate tax/gift tax exemption amounts will be in the future.   As such, if you have an estate valued in excess of the current amounts, your window of opportunity may be closing by the end of 2012.  We encourage you to talk to your estate planning attorney to determine whether gifting this year is a beneficial strategy for your estate plan.

Completing Retirement Plan Contributions for the Tax Year 2011  

Please remember that you have until April 17, 2012 (2 days later than normal this year) to make final contributions to most of the following retirement accounts for the year 2011.  

Traditional Individual Retirement Account (IRA):  You can contribute up to $5000 to your IRA for 2011 or $6000 if you are over age 50.    The contribution is deductible if you are not covered by an em-ployer’s retirement plan or if your income falls within certain income and filing status limits.   If you have questions, please call us or your CPA.  

Roth IRA: The contribution amounts for the Roth IRA are the same as for the traditional IRA except your income must be less than $179,000 (married) or less than $122,000 (single).  If you do not have earned income, you cannot contribute.  While the Roth IRA contribution is not tax deductible, all future earnings grow tax-free, and in most circumstances, are tax-free upon withdrawal.  

SEP-IRA:  The SEP (Simplified Employee Pension) IRA is for self-employed workers.   As long as the plan was established prior to December 31, 2011, contributions can be made until 2011 taxes are due (including extensions).   Contributions can be as high as $49,000 for 2011, but are based on the busi-ness’s net income so please consult your CPA to determine the amount and timing of your contributions.

What to Do With Your 401(k) When You Leave Your Job  

When you leave a job or employer, don’t forget to consider what to do with your company 401(k).   Essentially, you have four options. 

1. You can transfer the funds to an IRA Rollover account.
2. You can leave the money with your former employer.
3. You can transfer the funds to your new 401(k) account with your new employer.
4. You can liquidate your 401(k).  

Option #1:  TRANSFER TO AN IRA ROLLOVER ACCOUNT    
This is our best recommendation.  Transferring (“rolling-over”) your former company’s 401(k) ac-count into a new or an existing IRA Rollover account allows you to more effectively and efficiently manage these funds.  It also keeps you from encountering possible administrative difficulties (moved locations, changed investment options, went out of business, etc.) associated with your former em-ployer.  To minimize future uncertainty, the IRA Rollover account is the best choice.

Be aware of the IRA Rollover rules however.  The simplest way to transfer accounts is to make a “trustee-to-trustee” transfer and have the check made out to the custodian (not you) of your new account.  It’s critically important to have all funds deposited in the IRA Rollover account within 60 days of the transfer from your former 401(k).  We’re happy to help you with this transaction if you prefer.    

Option #2:   LEAVE THE MONEY WITH YOUR FORMER EMPLOYER  
This an acceptable choice provided that you are still allowed to make changes to your account and you are not charged higher fees since you no longer work for this employer.   As such, if you are comfortable with the available investment choices, you can leave the 401(k) with your former employer.    

Option #3:  ROLLOVER YOUR 401(k) TO YOUR NEW EMPLOYER  
If your new employer allows this option, you gain the advantage of having all your retirement money in one place, making it easier to manage and control.   Again, it is important you follow the rules for 401(k) rollovers.  All funds from a previous 401(k) account must be deposited in your new 401(k) within 60 days of receipt and the check should be payable to your company’s custodian (not you).   Failure to do so may result in tax withholdings and possible penalties.  It is best to consult with your new employer’s pension benefits department to help guide you with this transfer.    

Option #4:  LIQUIDATE YOUR 401(k)
This option is the worst of all recommendations. Not only will you lose the tremendous compounding effects of allowing your money grow tax-deferred, but you will incur taxes and penalties on the amount liquidated.  

Other Retirement Accounts  
Depending on the type of work in your past, upon retirement you may find that you have a variety of retirement accounts – 401(k), 403(b), IRA, Roth IRA, a Solo 401(k), SEP-IRA, etc.    Most of these retirement accounts can be consolidated into a traditional IRA account.    A Roth IRA account, due to the different tax and distribution requirements, cannot be consolidated and must remain separate.     Oftentimes, we work with clients to consolidate retirement accounts, so please call us if you have any questions about your retirement accounts.

In The News  

Steve Biggs was quoted in the February 18th issue of USA Today in the MoneyWatch section.   In this article, Steve answered the question, “Should a retiree move to an all bond portfolio?” You can find this article at http://www.usatoday.com/money/perfi/columnist/moneywatch/story/2012-02-18/moving-assets-into-bonds-when-retiring/53121374/1.  In the current March issue of Money Magazine, Peggy’s advice will be highlighted in work she performed in their monthly “Financial Fix” column (page 32).   If you would like to see copies of either of these articles, we are happy to send them to you.

News from HC Financial Advisors  

Congratulations to Steve Biggs on being awarded the Certified Financial Planner (CFP) designa-tion!  As many of you know, Steve is our Chief Investment Officer and a partner at HC Financial Advisors.  He also holds a Masters degree in Finance and is a Chartered Financial Analyst (CFA).  By passing the CFP two day exams in November, he was awarded the CFP designation in Febru-ary.  We take great pride in having highly educated and experienced professionals at HC Financial Advisors and Steve certainly exemplifies those qualities.

Upcoming Conferences  

This first half of the year is the conference season for our industry.   In February, Andy and Peggy attended the NAPFA sponsored Large Firm Exchange Conference for larger “fee-only” firms.  During the conference, they gained valuable information on processes and systems effectively em-ployed by other firms of similar size and complexity.    

From May 6-9, Steve will be attending the 65th Annual CFA conference while Peggy and Karla are attending the NAPFA National Conference from May 8-11.    

Finally, Karla, Andy, Steve and Peggy will attend the 40th Annual FPA NorCal Conference in San Francisco on May 29-30.   This has traditionally been one of the best conferences in the country and we look forward to another year of attendance and the additional education we gain.   In her sixth year, Karla helps lead this conference and this year she is responsible for helping to choose the 36 session topics and associated speakers.  During one conference session, Peggy will be shar-ing her expertise and extensive knowledge in assisting clients and their estate attorneys settle their estates.    

We continue to attend these “client-centered” conferences to gain additional investment ideas, fi-nancial planning information and techniques, and industry “best-practices” knowledge to help im-prove our service offering and operational efficiency.

HC Financial Advisors, Inc. is a fee-only investment advisory firm offering full financial management services to individuals and their families. We offer ongoing investment management and financial planning services for an annual fee based on assets managed. Our current minimum annual fee for investment management clients is $10,000 ($1,000,000 under management). This fee includes the management of assets as well as financial planning services.  We welcome your referrals to our firm. There is no charge for a preliminary, one hour informational meeting to find out more about our services, investment philosophy, and backgrounds.