12 year-end financial ideas to make the yuletide merrier

By Kevin Startt

Startt Planning!


They say that an economist has all the answers, but to last year’s questions. We have compiled a list of 12 year-end financial moves that clients should be making in anticipation of the attached new tax rates or Taxmageddon. Hopefully, you’ll find some answers here before the year wraps up prior to Auld Lang Syne and 2013.

1. On the first day of Christmas, reposition assets from negative return CDs to FIAs. Two well-respected advisors, Ron Carson, an investment advisor, and portfolio manager, Jeremy Grantham of GMO Advisors, look for subnormal 5 percent returns from equities over the next 10 years, which is an abnormally low differential from the annual point-to point on many investment grade carriers' FIAs.

2. On the second day of Christmas, position to Roth IRAs and reap the benefits of triple tax free compounding and value that will go up with rising tax rates.

3. On the third day, use existing pre-tax deductions on SEP IRAs and 401(k) plans to fund life insurance as an ideal wealth transfer vehicle, gift, or tax free retirement vehicle.

4. On the fourth day of Christmas, use a Stretch IRA for wealth transfer and minimize income and estate taxes for future generations and provide the gift that keeps on giving to heirs.

5. On the fifth day of Christmas, make gifts to a GRIT or GRAT (Grantor Retained Trust) as a business owner before the Obama administration reduces the benefit of these ideal estate planning wealth transfer plans or interest rates go up. GRITS go great with wassail.

6. On the sixth day of Christmas, establish a charitable trust or make a donation to charity before deductions are capped or limited to 28 percent as proposed by the Obama administration. Don’t be a Scrooge.

7. On the seventh day of Christmas, sell capital gains assets that pay dividends or mutual funds after they go ex-dividend to save 33 percent over proposed capital gains rate increases.

8. On the eighth day of Christmas, examine your insurance company general account, ratings and solvency ratios for quality of holdings. As U.S. Treasury debt extends to its longest duration in 20 years at 64.4 months, the risk of a bond bubble goes up and the risk of principal losses goes up as well.

9. On the ninth day, consider selling dividend income paying stocks and funds. When Obama supporter, Costco, borrows $3.5 billion to pay a $3 billion dividend, the signal to avoid a potential tripling of taxes on dividend income shows the tax Grinch is growling.

10. On the tenth day of Christmas, adjust portfolio holdings to include hard assets such as land or precious metals to ensure that when volatility or inflation reemerges, you are fine-tuned with Rudolph’s red nose to guide you through the fog if the other reindeer fail.
11. On the eleventh day, be a P-I-G (Protection-Income-Growth) despite all the negative pork reports and look at fixed income annuities and guaranteed income riders as a flexible bond alternative or substitute in today’s age of safety to which savers and investors are flocking.

12. On the twelfth day of Christmas, for those who no longer need as much insurance, use life insurance losses to offset gains from other investments if the cash surrender value is lower than the total premiums paid in deducting the losses and offsetting gains in other investments, or transfer the proceeds to an annuity under a 1035 exchange and use the losses to offset future gains in the annuity. This “life insurance rescue” is little used but with millions of policy holders facing potential lapses, it may make sense.