As it stands now, when 2013 gets here, taxes are most likely going up. The tax cuts signed in 2001 and 2003 by President George W. Bush expire this year and brackets return to the previous rates of up to 39.6 percent in 2013 from 35 percent now. In addition, the child tax credit expires and capital gains rates go back to 20 percent from zero to 15 percent this year.

The only thing that could stop these changes is Congress. Being an election year, taxes are a hot topic. But it’s also a topic that may not see much action in an election year. A possible gridlock and unknown outcome make it important to get help now with tax planning to head off the potential hike.

Here are some possible areas to plan for:

• Convert traditional IRAs to Roth IRAs. While this decision is based on each individual’s situation, those that are considering converting may want to pull the trigger this year. Conversions are considered ordinary income so will be taxed at the individuals’ current tax rate. For the wealthy, it would be better to be taxed at 35 percent instead of 39.6 percent.
• Take income earlier. If you are able to control when income is received, taking it in 2012 could result in it being taxed at a lower rate. This includes exercising options.
• Sell profitable investments. If the capital gains tax is headed to 20 percent in 2013, some individuals may want to consider cashing in gains at 15 percent this year; this includes gains on selling a business.
• Reduce dividends. If dividends become taxed at the taxpayer’s tax rate in 2013 instead of up to 15 percent now, some individuals may want to rebalance their portfolio to put investments that pay no or lower dividends in their taxable accounts and higher dividend investments in tax-deferred accounts such as 401ks and IRAs. On top of this, in 2013 investment income would be taxed an additional 3.8 percent for those with incomes over $200,000 single or $250,000 for married filing jointly. This includes interest, dividends, capital gains and rental income. The tax is part of the health care reform plan.

Tax planning in a time where the future is unknown is difficult, but knowing what could change can help anyone prepare now to make changes to their finances if needed.

• Save for their own retirement instead of having a pension to rely on
• Pay more for their own health care as companies pick up less of the insurance premium and out-of-pocket expenses
• Manage their own retirement plan through a 401k instead of relying on a defined benefit plan (pension)
• Pay for more of their medical costs in retirement as companies pay fewer retiree health benefits

American Airlines recently became the latest company to cut worker benefits. It has told employees that it wants to do away with its pension plan and only offer employees a 401k.

• For those employees who are in the 401k now and will lose their job, there is a silver lining — they no longer have to participate in the American 401k plan. Any employee leaving a company that has a 401k can roll it over into an Individual Retirement Account (IRA). The benefits being:
• Lower investment fees — 401ks can be one of the most expensive retirement plans available. The balances can be invested in lower cost investment choices and not be subject to administrative fees.
• More investment choices — Having an IRA opens a world of possibilities in where to invest money for retirement. The 401k typically has limited choices.
• Allow a Roth Conversion — Rolling a 401k into an IRA allows for balances to be converted into a Roth IRA. This would allow future growth and retirement withdrawals to be tax free in return for paying the income tax now on the current balance, which should mean a total lower tax than in retirement. And now there is no longer an income limit to be eligible to convert.
• More flexibility in beneficiaries — An IRA allows more options for who the money will be passed on to at death and opportunities to delay income taxes to the beneficiary.

Contact a CFP for help with IRA rollovers, the rules and managing retirement plans.

The first step in creating a care plan is to divide the tasks among family members. Each child should be given an assignment, such as:

—Interview nursing home staff for details on cost and services;

—Work with a financial planner to create a strategy for managing expenses and assets;

—Meet with an attorney to structure legal documents.

When shopping for nursing homes, each one should be carefully evaluated on costs and services. Each home has its own pricing plan and what is included, or not included, in that price. All nursing homes are not a “one price for all” service. Each home should provide pricing and services in writing. In addition, obtain a copy of the contract and have an elder law attorney review it first. Never sign a blank contract.

A financial planner can help a family anticipate financial needs and resources. Unfortunately, no one knows the number of years a parent will live, which makes planning difficult. But once the nursing home is chosen and the doctor has estimated medical or drug needs, the planner can use these costs to be more precise.

The planner should create an annual budget for the parent and detail how assets would be most efficiently withdrawn to meet expenses. A net worth statement should list any annuities, pensions, trusts or benefits the parent is entitled to receive. The planner should also be knowledgeable of Social Security benefits and Medicaid planning in case the parent runs out of money. A fee-only planner is a good choice to receive unbiased advice and avoid potential solicitation of product sales. All the children should attend the plan meeting so that all agree on the strategy.

The attorney has an important role in making sure legal documents give a child or children authority to act on the parent’s behalf. This is important to make medical decisions and prove to the bank or investment company that the child can make transactions for the parent, usually by power of attorney. If the parent is wealthy, the attorney could also offer strategies for avoiding estate taxes now and in the future.

Putting a parent in a home is not an overnight event. Getting organized — and getting all the siblings on the same page first —eases the process and prevents disputes.

-Dan Serra, CFP, MS. Plano, Texas

The decline is attributed to Medicare changes under recent health care reform. The change reduced expenses for prescription drugs.

“While the savings generated through the health care reform laws is a welcome relief to many seniors, it should be considered a one-time adjustment, at least for the time being,” Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business, said in a news release. “Today’s workers still face the prospect of significant medical expenses in retirement and must begin to include those costs in their retirement plan strategies.”

Kimler added that we should expect health care expenses to continue to rise as medical services continue to see price increases.

In the meantime, seniors now can enjoy those drug savings. Beginning this year, the law offers a 50 percent discount on brand name drugs that fall into the “donut hole” — the gap in Medicare between $2,840 and $4,550. This gap will further be reduced until eliminated in 2020.

The concept of the government helping to reduce medical costs isn’t extending to nursing-home expenses, however. This is a big misconception among Americans, who often mix long-term care with medical care. They are not the same. Still, 45 percent of those between 40 and 64 expect the government to pay their long-term care costs, according to a recent Thrivent Financial survey of 2,000 adult Americans (including 745 pre-retirees).

“Many who expect that government will foot the bill for their future long-term care may be unpleasantly surprised,” Mona Diebold, manager of long-term care solutions at Thrivent Financial for Lutherans, said in a news release. “While federal and state governments share responsibility for running Medicaid and Medicare programs that may pay for long-term care, restrictions limit who may qualify and when. Often, for example, individuals with personal financial resources first must substantially ‘spend down’ those resources before government programs will aid them.”

An estimated 70 percent of individuals over age 65 will require long-term care services at some point in their lives, according to the National Clearinghouse for Long-Term Care Information.

-Dan Serra, CFP, MS

Part of the planning may be a pre-marital contract. This makes sense not only to show who owns what, but can protect either spouse’s business from being caught in a divorce. It also helps each other avoid assuming debts of the other. Overall, the pre-marital contract can prevent a bad divorce experience.

In most states, what an individual brings into the marriage can remain his or her separate property, as long as it is not mixed with shared property, such as a joint checking or investment account. Also, property inherited or gifted during a marriage to one spouse may remain that spouse’s separate property.

While property owned at the time of marriage can be kept separate, property obtained or earned during a marriage may not be separate. For example, if the husband buys a car in his name, legally it is likely half the wife’s. The debt can be half the wife’s too. That’s because it is seen as being purchased with income earned during a marriage. This can even be the case for growth of separate property. If the wife has an IRA at the time of marriage and it grows by $50,000, then $25,000 of the growth can be the husband’s because it was earned while married.

If both spouses agree to separate property, it is important to speak to an attorney about a written agreement and proof that the property is separate. If a marriage ends in divorce, the court is going to want proof it is separate property.

In some states like Texas, marriage is not the only act that can create joint property. Just being in a relationship where two individuals are holding themselves out as husband and wife and are living together may trigger a ruling of joint property by a court for property obtained during this relationship. This could be detrimental to an individual who uses his or her money for a major purchase only to see half of it taken away when the relationship ends.

If this is the case in your state, a co-habitation agreement may be a good idea. This is like a pre-marital agreement for singles. Any individual with substantial wealth or property should consult an attorney before entering a serious relationship.

-Dan Serra, CFP, MS

February is the month of love, when couples renew their commitment to each other by buying chocolate hearts and flower bouquets. But spending money is not the answer to a long relationship. In fact, not being able to spending a lot of money could help a relationship grow stronger.

Couples who develop a budget together and agree on how the money is spent are more likely to understand that love comes from the heart, not the wallet. These couples understand that time together is what is most important.

Other couples who are suffering through tough financial times also grow stronger by working together to survive. A recent survey found 38 percent of couples said recessionary times can prevent a divorce or separation, according to the National Marriage Project at the University of Virginia. And 29 percent said the recent recession deepened their commitment.

It is unfortunate that it takes a recession to make couples realize how important it is to work together toward successful financial planning. Acting as a team, a couple should plan on how to handle both prosperous economic times and deteriorating financial conditions. This way, the couple knows ahead of time what to expect when things aren’t going right, and more importantly how not to get carried away and forget about saving for the bad times when the money is flowing.

Key points that couples should plan ahead of time include:

1. Whether to keep separate bank accounts or merge into a joint account;
2. How to pay off debt and avoid debt;
3. How to avoid overspending and how to discuss how to avoid surprising each other with expenses;
4. How to discuss money secrets so that the other half can help solve issues or avoid disputes;
5. How much to save for emergencies and what those emergencies could be.

Working together as a couple not only bodes well for the relationship, but the nation.

“Research shows that marriage makes people happier, live longer, and build more economic security. Children with married parents perform better in school (and) have less trouble with the law, less teen pregnancy and fewer issues with addiction,” said Sheila Weber, executive director of National Marriage Week USA, an effort to promote the benefits of marriage.

- Dan Serra, CFP, MS

The new year brings new goals, and those goals often include financial ones. Saving money is the third most popular goal, according to a survey of 5,000 people by 43things.com. And the way to save money is to either make more or spend less. For most of us, the latter is the most realistic option.

But that doesn’t mean it’s not challenging. Budgeting often fails for many people because our brains are not wired to maintain a spending consistency. Part of that blame has to be because we have become a cashless society with the proliferation of credit cards. We don’t think about our spending when we can flash credit cards. According to an M.I.T. researcher, this is one of the reasons people fail in budgeting. Spending with cash is more painful and results in spending less.

So if we fail at budgeting, what can be done to improve the odds of success? If you believe M.I.T., the first thing to do is get rid of the credit cards.

Closing them all may not be the best option because they might be needed someday and they can help your credit score. Instead, why not do your own “credit freeze” and put them in a bowl of water and place it in the freezer. That way, when temptation is calling, by the time the ice melts, the temptation may pass.

A psychological tactic to help in sticking to budgets is challenging a spouse or friend on who can spend less. The one who spends more than the other must buy the winner a gift or put a certain amount in the winner’s savings account. People often become more serious with spending when there is a consequence of losing money.

Another strategy is not to keep a budget at all, but keep a savings plan. Determine an amount to save each month, usually 5 percent to 15 percent a month, and don’t worry how the rest of the monthly income is spent. Save that amount the first of every month. This way, it meets a goal of building savings or retirement accounts for the future without having to worry if there is any money left at the end of the month to save.

Thinking differently can give anyone an advantage in managing money.

-Dan Serra, CFP, MS

One way many people protect themselves from this is buying long-term care insurance. But the costs make it difficult for many in the working class. A couple around age 50 can expect to pay around $4,000 a year for the insurance. And that premium doesn’t always stay the same. This year, some insurers raised premiums as much as 40 percent. The good news is that up to a certain limits, long-term care premiums are eligible for a tax deduction.

Many who can afford it are looking at a one-time premium for long-term care insurance. Making a lump sum payment of premiums, about $50,000, can avoid those premium increases over time. New policies can provide death benefits in case the retiree dies before needing care. The only other option is to save in an individual investment account.

However it’s done, neglecting planning for this potential budget killer can cause financial pain. From 2009 to 2010, nursing home room rates rose 4.6 percent to $83,585 a year, according to the Market Survey of Long-Term Care Costs by MetLife Insurance Co. Assisted living centers saw room rates rise 5.2 percent to $39,516 a year. And that’s one expense Medicare doesn’t cover.

The typical patient in these elder homes is a woman, age 83 years old, the survey found. With the average life expectancy of a woman today at 81 years old, about half of women alive today would fit the profile of needing long-term care.

This allows a perspective on who should be planning for this expense. A woman whose parents have lived a long healthy life are more likely to need insurance or a savings plan to pay for care costs.

If paying the cost of a premium to provide protection up to the current costs is too much, buying a policy that offers partial protection, such as $100 a day instead of a $200 a day benefit, can at least help offset the cost. The same goes for investing in a personal account — save what you can. For those who reach age 50 and are in good health, the message is clear: Make a plan to pay for medical care in retirement.

-Dan Serra, CFP, MS

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SFP Financial Planner Dan Serra has been awarded the Master of Science degree in Financial Planning from The College for Financial Planning®, located in Denver. The master of science degree is
the highest degree available from the College for Financial Planning, and demonstrates
proficiency of the elements of financial planning.

The master’s curriculum attracts professionals who want to challenge themselves and achieve skills in several
areas of investing and financial planning. The program provides graduate-level study in Financial Planning covering information in the areas of financial planning, insurance, investing, wealth management, tax planning, retirement planning, and estate planning.
A graduate is able to demonstrate competence in the following areas:
1. the ability to analyze arguements, case studies and issues
2. the aptitude to use logical reasoning and an understanding of the underlying assumptions
3. confidence in the ability to evaluate methods and materials native to financial planning
4. appreciation of emerging issues and important contributions that have been made to financial planning
5. knowledge of terms, concepts and theories in financial planning.
The College for Financial Planning is the country’s oldest and most widely respected provider of financial planning education, established in 1972.

There are three ways fear can grip an investor.

First, there is the fear of losing money. Many people choose safe investments because they don’t want to lose money by taking a risk with stocks. Taking this approach can eliminate that fear, but in the long term it hurts the pocketbook. The safer those investments, the lower the investment gain. Then when inflation goes up 3 percent, the safe investment earning 2 percent does not provide enough to pay the higher costs, and the money runs out sooner.

Second, there is the fear of not gaining money. This type of fear is more common in younger investors. They worry what they are doing will not provide enough profit to improve their lifestyle. Younger investors often like to compare investment returns. They fear they will not gain enough to outdo a friend and therefore they would not have enough to spend on luxuries. These investors want to make a lot of money by being greedy, investing in high-risk stocks or in a new business. This fear can end up hurting if the extra risk leads to big losses. Investments that have the best potential for gain often carry the biggest potential for loss.

Third, there is the fear of running out of money. Everyone has this fear, either by spending too much or outliving a retirement stash. An income may vanish, or an investment may fail. This fear can result in damaging frugality. This fear can be overcome by saving as much as possible while young to build an adequate retirement fund and sticking to a budget to cut out unneeded expenses.

Properly diversifying those savings can improve the chances of increasing that pot. This also can eliminate the fear of losing money, because enough was saved to afford a loss, and the fear of not gaining money, because the longer it is invested properly, the more gain is possible.

Take a look at your fears and determine what action – saving more, diversifying risk or sticking to a budget – you need to take to make money less fearful.

-Dan Serra

The end of the year is the time to decide whether to make financial decisions before year-end or wait until the following year if a better tax break is available.

As it stands now, the Bush tax cuts are expiring this year, and we can look forward to higher tax brackets next year. The 10 percent bracket goes away and is combined with the 15 percent bracket, and the highest bracket of 35 percent goes to 39.6 percent. Also disappearing as of now are low dividend rates and capital gain taxes move from 15 percent to 20 percent.

While this may provide a case for accelerating income into 2010 to pay at lower tax rates, it’s still too early to decide. If Congress does make some last-minute changes to tax laws, some could see their taxes go down next year.

This uncertainty makes this year perhaps the most important to be working closely with a fee-only certified financial planner to analyze what decisions would be most tax-efficient by the end of the year.

Tax laws we will certainly see in 2011 are those related to the new health care reform law passed this year. These laws will expand each year for the next five years, if the law isn’t changed.

Starting next year, withdrawals from flexible spending accounts and health savings accounts will no longer be allowed on over-the-counter medicines. So participants in these plans may want to stock up in December on aspirin and other drugs to be able to use those funds. For those with health savings accounts, any withdrawal for these drugs or non-medical related items will be penalized by 20 percent instead of the current 10 percent.

For small business owners, buying equipment this year may be a wise tax decision. The IRS Section 179 deduction that allows businesses to deduct up to $250,000 in purchases in one year is being cut to just $25,000 in 2011. Also being cut are deductions and credits for tuition and teacher expenses. Some taxpayers will also see their tax deduction on student loan interest disappear.

We should expect more tax law changes, but until then the only way to know what taxes could be in the future is to visit www.MyTaxBurden.org. It allows you to type in your current income and expenses, then shows the potential taxes under four scenarios that could be possible for 2011 taxes.

While the government does a good job of taking our money, it also is fair enough to offer to give some back. One way is available online to search for any cash you may be owed.

If you, your parents or grandparents ever invested in U.S. savings bonds, those bonds may have gotten lost or destroyed and no one knows the cash value is sitting unclaimed. Series E savings bonds issued between 1941 and 1979 are now worth a minimum of four times their face value. Plus, they are no longer collecting interest, which means they’re prime for withdrawal. If the bonds were issued in 1974 or later, all one needs is a Social Security number of the purchaser to try to find a bond.

Start at http://www.treasuryhunt.gov/ and enter the Social Security number of a relative, or yourself, to see if an old bond is waiting to be redeemed. This website is run by the U.S. Treasury Department. If a bond is found and it is of a deceased relative, the heir can contact the Treasury Department and file a form to claim it.

The downside of claiming the bond is whoever does so will have to pay the tax in the accrued interest.

For individuals who own active bonds still accumulating interest, it would be wise to indicate somewhere in personal files that they exist so heirs know to claim them.

The laws for credit cards, part of consumer protection legislation, are aimed at regulating the industry. Banks have estimated the changes in how they can charge customers will eliminate an estimated $390 million in credit card revenue.

Naturally, when a company can’t charge for one thing, it looks to charge for another to make up revenue. This is why it’s important to watch your account for changes.

What some customers already are seeing are:

—Increased or new annual fees;

—Increased interest rates;

—Increased late-payment fees;

—Shortened billing cycles to require faster payments (minimum is now 21 days);

—Added fees for not using the card or not charging a minimum amount;

—Higher fees for using the card outside of the country.

More could follow, so don’t neglect the notices in the mail from credit cards — you could be hit with a charge you didn’t realize was coming. If you are, call the credit card company immediately and dispute it. Many can be persuaded to waive the fee for first-time offenders. If you are hit with new fees, it may be time to shop around for a new credit card. Beware, however: If you anticipate applying for a large loan soon, new credit could count against you.

The fee contagion is spreading, not just through credit cards but also into checking accounts. The days of free checking are threatened as more banks are starting to charge monthly account fees, fees for paper statements, fees for using tellers, etc. The banks want to reduce their expense of operating checking accounts by getting customers to use ATMs and Internet banking.

Other interesting regulations added by consumer protection laws include:

—Consumers must now be provided, on request, their credit score if turned down for a loan or given a higher interest rate. Insurance companies and landlords also must provide the score if prices are higher price because of lower credit scores.

—Prepayment penalties on adjustable mortgages are no longer allowed. Mortgage origination fees are now capped at 3 percent.

—The federal government and colleges and universities can limit what you charge on your credit cards. This means you may not be allowed to put tuition or tax payments on your card.

—It is now legal for stores to offer discounts to shoppers who pay with cash instead of charging a purchase. So if you have the cash, ask about a discount.

One of the obvious ones, beyond paying bills on time, is to not be overextended on credit. Lenders look at how credit is managed, so someone with $10,000 credit limit but owes $9,000 won’t appear as good a borrower as someone who owes only $1,000 of the $10,000 limit. Therefore, it is important to pay down credit before applying for a loan. This can help raise your credit score and get a better rate.

When you do pay down the debt, such as on a credit card, keep the account open to show lenders you have a long credit history and you are responsible by not maxing out every loan you get. Be wary, however, of some creditors who have started reducing credit limits as amounts are paid off. You may need to ask for the limit to be raised, or switch to a new credit card.

Next, verify your credit score every year, or right before you apply for a large loan such as a mortgage, to make sure there is nothing on the report that is inaccurate. While other credit report requests could harm your score, because it indicates you are looking for help often, requesting your own report does no damage to your record. There are three credit bureaus that maintain reports. Request them all through www.annualcreditreport.com. Reports are free once a year. Nearly eight in 10 reports have an error, according to the U.S. Public Interest Research Groups. Be wary of firms that offer free credit reports only after you sign up for another service with a monthly fee.

If you do see a mistake, follow the instructions to dispute the charge. If the mistake was caused by a certain circumstance you feel was not common, also dispute it.

The importance of good credit in our changing economy cannot be overemphasized. Those neglecting their credit are positioning themselves to be shut out of the economy, and at risk of not having a lifeline when times are tough. In addition, those with poor credit also face higher expenses as interest rates, insurance premiums, and rental rates can be higher for those without excellent credit, not to mention employers may shun applicants that do not demonstrate responsible money management.

Make it a point to audit your credit, or hire a financial planner to do so, at least once a year and make managing it a priority in your life. Doing so will eliminate chances of financial disasters.

This time of year always brings unwanted guests in my home. Not relatives, but insects. It’s peak time for flies and mosquitoes as the temperatures heat up. Determined to remove the pests, I visited my local big-box home store on a simple mission to buy a fly swatter. Once there, I was overwhelmed by all the gadgets for killing bugs. The technology invested in defeating pests is amazing, from zappers to traps to supersized citronella candles. But did I find a fly swatter? Nope.

Being a financial planner, this led me to thinking how often investments are complicated even though investing should be simple. All sorts of products have been developed to confuse us and rip away our confidence in putting money in a certain investment. My grandparents had simple options. Everything was done at the local bank. Now there are mutual funds, annuities and exchange-traded funds in all flavors. What’s an investor to do?

If you make a simple investment – a fund or fly swatter – things are a lot easier and the instructions a lot shorter. Not to mention the dangers of not knowing what you are buying.

How can an investment be simple? Start with the fee it charges. The lower the fee the more likely it will be simple. An exchange-traded fund invested in a set index of small companies will have a lower cost than a similar fund managed using a system developed by a so-called investment guru. That’s because you are buying something that requires little maintenance, won’t break down and is easy to operate – just like the fly swatter.

Second, investments that clearly spell out what your money is invested in and how make things easier. The prospectus for a bond fund will list the bonds so you know what is being bought and how much. More complicated investments list where the money is going but if they frequently change, the cost is likely to be higher, and the investor may not know what the investment is holding today. Funds that index investments seek to maintain a percentage of an investment without jumping in and out of different investments. This keeps costs low, too, because you don’t have to worry about replacing investments – just like the zapper that will eventually break or need a part. How many fly swatters break down?

So the next time you look at an investment, ask yourself are you buying the high-tech complicated gadget hoping it will work, or are you sticking to the tried-and-true fly swatter?

Here are some of the financial issues women said they have with living longer:

ISSUE: Women said they are more likely than men to not know how to achieve their financial goals. SOLUTION: Develop a financial plan to determine what steps to take that could create a secure future and meet life goals.

ISSUE: More women than men said they feel their retirement savings are not enough, likely because they are more risk-adverse and less likely to invest in stocks and funds that could provide higher returns. SOLUTION: A fee-only financial planner such as SFP can explain risks and rewards and help allocate funds to appropriate investments.

ISSUE: More women than men are buying income annuities for retirement, not knowing that buying too much poses limitations that annuities could have for growth. SOLUTION: Weighing the pros and cons of annuities with a fee-only financial planner could help determine if annuities fit and whether there are better options.

ISSUE: Only four in 10 women said they budget and stick to it. SOLUTION: Create a budget with a fee-only financial planner’s counsel and let the financial planner monitor it to provide feedback and encouragement.

ISSUE: Women said they are more likely to feel a need for life insurance than men, but may be unaware of how life insurance plays a role in financial planning. SOLUTION: A fee-only financial planner can help determine appropriate amounts of life insurance and help find low-cost policies, in addition to explaining how insurance could benefit or not benefit a financial plan.

Strategic Financial Planning is experienced in these aspects through extensive work with divorced and widowed clients. Discussing these issues with SFP’s fee-only Certified Financial Planners can help women overcome the challenges that could derail their financial future in the long term.