Rolling Stone

It’s (almost) never too late to get important things done. We all know the saying “A rolling stone gathers no moss” and moss, in this case, is missed opportunities that expire at the end of this year (the most pressing deadline at the time, of course). Remember 529s funding, charitable contributions, portfolio sales, annual exclusion gifting and IRA Required Minimum Distributions (including inherited IRAs) must be completed by 12/31 to be recorded in the 2010 tax year.

Additionally, for those considering Roth IRA conversions, you must have the conversion complete by 12/31 to qualify for the special two-year deferral of income recognition (this is only available for conversions performed in 2010). This opportunity should be considered along with recharacterization opportunity changes, investment holdings outlook, other tax goals, etc. when deciding whether to wait or act now.

Last Minute Race

Last Friday President Obama signed into law the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” The implementation of this bill signaled the end of a last-minute race at the end of this year to avoid significant tax increases scheduled to occur January 1, 2011. There are a number of ramifications of this bill, none of which are insignificant.

One outcome was a temporary, two-year “fix” of the federal estate tax. There are many details of this provision although a few points are; the federal estate tax exemption, generation skipping transfer tax exemption and lifetime gift tax exemption have all been “reunified” and set at $5 Million per person, and the federal estate tax exemptions are now “portable” (i.e. a spouse can use their deceased spouses unused federal estate tax exemption amount). There are many planning opportunities created by these changes that must be addressed in the next two years and evaluating those opportunities in context of a broad wealth plan will be more important than ever.

Why are interest rates rising in the US?

When the Federal Reserve announced a second round of quantitative easing (QE2) in early November their goal was to lower long-term interest rates to help further boost the economy.  However, we’ve seen the exact opposite effect in the market.  Interest rates on a wide variety of bonds have been rising over the past month.  Why?  The reason rates have been increasing is because the economy continues to improve, investors now have a greater appetite for risk, the US tax compromise deal working its way through Congress, and because of concern that inflation will increase as a result of QE2.