JoeTaxpayer

I was going though a series of articles I saved and found “10 Reasons You are Not Rich” which appeared on TheStreet.com back in March of this year. A couple things attracted me to this article, first to save a copy and now that I see it again, to share it with you. First, it’s tough for me to read any author and find myself agreeing 100%, so this is one of those rare moments. Next, there are so many articles that talk about some specifics, retirement, asset allocation, stock picking, etc. Here, we have one that warns of behaviors that can get in the way of all that other good advice.

The article offers 10 things to think about, don’t confuse this with believing that if you follow any one of these, you are on the road to success. It’s more a matter of reading and understanding how some of these reasons may be holding you back. The thought occurs to me, if the author wished, he could turn each of his ten reasons into a chapter of a book, and launch a new title in what has become a pretty popular genre.

Here’s the list –

• You care what your car looks like
• You feel entitlement
• You lack diversification
• You started too late
• You don’t like to learn
• You don’t do what you enjoy
• You buy things you don’t use
• You don’t understand value
• Your house is too big
• You fail to take advantage of opportunities

Or “your tax guy is not your planner*”. Last month, I posted on Year End Planning and offered a couple thoughts for issues that need to be addressed before 12/31. As I thought more on this topic, it occurred to me that many people use a paid tax preparer, and while I have no issue with this, keep in mind that unless you have a November visit with your tax guy or planner, you will find that most things you might have done to optimize your finances have passed the 12/31 deadline. I mentioned charitable donations, specifically, that 2007 is the last year you may opt to donate money directly from your IRA if you are over 70-1/2. I also discussed converting some of your IRA to a Roth.

This is also the time to make sure you’ve taken the RMDs (required minimum distributions) from your IRA if you are 70-1/2 this year.

Also to think about at year end, is to review your portfolio and determine whether any rebalancing would be appropriate. I am a believer in long term investing, but a regular look at your portfolio composition is important. For the working investor, you may choose to balance as you go, making new purchases to keep each asset class at its targeted level, or for the retiree, to take withdrawals from the class which has become overweighted.

Tallying up your gains and losses for year can also help. Say you have a short term gain of $5000, which would be taxed at your standard rate (the same tax bracket as ordinary income). You may find a stock you are holding onto at enough of a loss to offset that gain. If you still wish to own that loser, you can either double up, more than 30 days prior to the sale, or buy it back 30 days after the sale, to avoid wash sale rule disqualification.

Your employer is probably advising you that any changes to your Flexible spending account and Dependant care account are due shortly. If you participate, go do the math. If not, review the details of these two programs, as the savings can really add up.

This is a good time to evaluate your 401(k) and IRA savings level. I read that 20% of people with access to a 401(k) do not deposit enough to capture the matching funds. I view that as money down the drain.

(As always, I welcome all comments, and suggestions if I’ve missed any key points)
JOE

*well, he may be. My point is just that there are a number of decisions to make well before you bring your box of statements to the tax man.

There are many financial issues that apply to a small group, relatively speaking, but for those for whom it applies, there’s some savings to be had by being aware. This is one such topic. Net Unrealized Appreciation (NUA) applies to company stock held in one’s qualified retirement account (such as 401(k)) and is the difference between the market value and the cost within the account. This often missed rule allows you to take the company stock out of your account and pay (regular) income tax on the original cost. The remaining difference is treated as a long term capital gain. This difference in tax rates can be huge for those who have loaded up on company stock in their retirement account especially if the shares have had a large run up in value. A bit of googling and I found a Company Stock Distribution Analysis Calculator which offers some further details and a nice calculator to see your potential savings (FYI – the site for this calculator went down. I will track down another, if I can.)
JOE

Not to be confused with my recommended list, these are the books I’m lining up to read in the next few months (I’m a slow reader and busy with my day job);

The Age of Turbulence, by Alan Greenspan (In process, reading this now)
Way of the Turtle, by Curtis M. Faith (I’d seen the ads in Barron’s and this book caught my attention, even though I don’t consider myself a trader.)
Microtrends: the Small Forces Behind Tomorrow’s Big Changes, by Mark Penn
The World Is Flat: A Brief History of the Twenty-first Century, by Thomas L. Friedman
Wealth and Poverty, by George Gilder
Supercapitalism, by Robert B. Reich

JOE