By Eric Henderson of Nationwide Financial
COLUMBUS, Ohio (TheStreet) -- No one knows for sure how the tax code will ultimately look in the next year, but we know the tax code will change. Bush-era tax cuts are set to expire at the end of 2013, and if our lawmakers take no action we can expect higher estate, investment and income taxes. In a lame duck congressional session, it's unclear what actions lawmakers will take before the end of the year.That's why it's a great time to meet with a financial adviser to begin formulating a plan to ensure your portfolio is prepared for the changes to come. You won't find an adviser who knows exactly how things are going to play out, but a good one can help you understand the three most likely potential tax change scenarios:
- Tax rates will increase, particularly for the wealthy.
- Tax deductions will be reduced.
- Tax rates will decrease, but tax preferences are removed.
- Should I consider selling large stock or mutual fund positions this year to generate a capital gain at the current rate?
- If so, can I reinvest the proceeds from these sales in a more tax-efficient manner or in a tax-deferred vehicle?
- Should I consider converting funds or investments that are taxable (for instance, bank CDs, money market accounts, mutual funds and other vehicles that result in annual taxable income) into tax-deferred opportunities such as tax-free municipal bonds, tax-deferred annuities or life insurance?
- Should I adjust my dividend stock position?
- Should I take advantage of current low income tax rates by accelerating income such as bonuses, receivables and associated deductions into the current tax year?
- Is this a good time for me to fund a Roth 401(k) or Roth IRA?
- Should I consider converting traditional IRA assets to a Roth IRA now?
- Are there opportunities for me to maximize my deductible retirement plan contributions in 2013?
- Does it make sense for me to shift assets from taxable accounts to a deferred variable annuity to gain tax deferral?
- Should I roll assets from a 401(k) to an IRA to gain access to mutual fund strategies that may not be available in a 401(k)?
- Should I set up an irrevocable life insurance trust before current exemption levels expire?
- If so, does it make sense to buy an annuity inside the trust to pay premiums on the life policy?