Completing Your Estate Plan Despite Tax Uncertainty

Since so many tax issues are up in the air right now, you should organize your tax moves into three categories: those you should do now, those you can decide last-minute in December, and Roth conversions. Your list should include:

Do-it-Now Moves

• Make a maximum contribution to your 401(k), which is $16,500 or $22,000 if you’re 50 or older this year.
• Sell taxable bonds now and pay the capital gains tax at 15% rather than a much higher rate next year.
• Make gifts of the annual exclusion amount.
• Set up GRATs before Congress makes them less attractive.

Tee-it-Up Moves

• Prepare to give away large sums of money late in December. This year the gift tax is only 35% and there is no GST tax. However, you don’t want to make taxable gifts now just in case Congress reinstates the GST tax retroactively.
• Identify possible charitable contributions for deductions purposes. If taxes go up next year, you’ll want to defer these deductions.
• Accelerate your income if possible. If it looks like taxes rates will rise, you’ll want to take in as much as possible in 2010 rather than 2011.

The Roth Do-Undo

This year, taxpayers can concert IRAs into Roth IRAs. If you convert now, you have until October of 2011 to undo the conversion or decide whether to pay taxes in 2010 or 2011 and 2012. “With Congress putting so many key tax decisions off, 20-20 hindsight could come in handy.”

Ashlea Ebeling and Janet Novack, The Federal Tax Law is an Uncertain Mess. Here’s How to Plan Anyway, Forbes.com, Oct. 25, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.