| 1 272269 1/12 Not FDIC Insured May Lose Value No Bank Guarantee Planning opportunities in 2012: Capitalizing on the changing tax landscape.

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Not FDIC Insured

May Lose Value

No Bank Guarantee

Planning opportunitiesin 2012: Capitalizing onthe changing tax landscape

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Topics for today

• A closer look at the nation’s debt crisis

• The outlook for taxes

• Planning considerations and strategies

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The debt crisis was front-pagenews in 2011

April 8 Government shutdown narrowly averted with passage of last minute budget deal

August 2 Debt ceiling crisis resolved through passage of the Budget Control Act of 2011, which cut discretionary spending by$900B over 10 years and called for establishment of a bipartisan committee to identify an additional $1.2T in long-term deficit reduction

September 19 The Obama administration announces a deficit reduction proposal calling for $3T in deficit reduction including $1.5Tin tax increases

November 21 Co-chairs of Joint Select Committee on Deficit Reduction release statement announcing inability to reach an agreement

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-1,500

-1,000

-500

0

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Annual U.S. federal budget surplus/deficit, 2000–2011 ($B)

Source: Congressional Budget Office, Monthly Budget Review, November 2011.

$1.3 Trillion

($)

Annual budget deficits have increased significantly since 2008…

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…and have driven federal debtto historically high levels

1940

Source: Office of Management and Budget, Historical Tables, 2011. Total gross federal debt includes debt held by the public as well as intra-governmental debt such as amounts owed to Social Security and federal employee retirement programs.

Current level of 93% is the

highest since WWII

Gross federal debt as a % of GDP, 1940–2010

(%)120

0

60

2010

1975

30

90

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Entitlement program spendingwill drive longer-term deficits

Source: Congressional Budget Office, Long-term Budget Outlook, June 2011. Projections based on CBO Alternative Fiscal Scenario.Tax revenues based on historical average of roughly 18% of GDP.

Social Security, Medicare, and Medicaid spendingas a percent of GDP, 1971–2081

1971

(%)25

0

15

2081

2026

Entitlement spending alone is projected to

surpass tax revenues in 2047

Tax revenues historically average 18% of GDP

10

20

5

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Mandatory63%

Discretionary37%

Source: Congressional Budget Office, Reducing the Deficit, Spending and Revenue Options, March 2011. Mandatory spending types primarily include Social Security, Medicare, and Medicaid, as well as interest on existing debt. Discretionary spending includes defense and non-defense items.

The majority of governmentspending is on auto-pilotU.S. federal government spending by type, 2011 estimated

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0

25

50

75

100

Tax rates are at historic lows

This chart reflects the maximum federal income tax rate at each year-end.Source: Internal Revenue Service, 2011.

Tax

rate

(%)

1960 2012

Kennedytax cuts

Tax Reform Act of ’86

Bush/Clintontax hikes

Bushtax cuts

U.S. federal income tax rates, 1960–2012 (%)

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U.S. federal estate tax figures, 1990–2012

Estates currently benefit fromhistorically low levels also

0

2,000,000

4,000,000

6,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

20

40

60

Exemption amount

Top tax rate

$ (%)

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The outlook for taxes:Preparing for a rising

tax environment

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What to watch for in 2012

• Proposed legislation to delay, reduce, or eliminate $1.2T in automatic spending cuts scheduled to begin in 2013 due to super-committee failure

• U.S. Supreme Court ruling on the health-care reform law —is the individual mandate to purchase health insurance constitutional?

• Debate around extension of the Bush-era tax cuts, potentialtax reform, and changes to major entitlement programs culminating in increased rhetoric leading up to November elections

• Major tax changes before November elections unlikely

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Taxes are poised to increase in 2013

Tax item 2012 2013

Ordinary income 35.0% 43.4%

Dividends 15.0% 43.4%

Capital gains 15.0% 23.8%

Payroll tax 4.2% 7.1%

Estate and gift taxes 35.0% 55.0%

Estate and gift taxexemption amounts

$5.12M $1M

Tax rates reflect highest marginal rate and incorporate additional taxes related to the health-care reform law. Health-care-related taxes include a surtax of 3.8% on net investment income and additional 0.9% payroll tax affecting single filers with income in excess of $200,000, and joint filers with income in excess of $250,000. Assumes employee payroll tax rate of 4.2% is extended into 2012.

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New health-care taxes take effect in 2013

• Increase in the individual portion of the Medicare payroll tax on wages from 1.45% to 2.35%

• New Medicare investment income tax of 3.8%• Will affect interest, dividends, capital gains,

rental income• Distributions from retirement accounts are excluded• Interest from municipal bonds not affected

• Targeted at individuals with more than $200K income (couples with $250K income)

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• Income phaseouts on itemized deductions and personal exemptions return

• Marriage tax penalty returns• Certain tax brackets eliminated

• 10% income tax bracket and 0% long-term capital gains/dividends tax bracket for example

• Educational tax-related benefits reduced• Deduction for student loan interest ends

• American Opportunity education tax credit expires

• Coverdell IRA contribution limit reverts to $500(from $2,000 currently)

• Child tax credit reverts to $500 (from $1,000 currently)

Other tax-related changeson tap for 2013

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Planning considerationsand strategies

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Five planning strategiesto consider in 2012

1. Accelerate income in 2012• Take advantage of low rates now and avoid new health-

care related taxes beginning in 2013

• Consider Roth IRA conversions, IRA distributions, realizing more income if self-employed, taking deferred compensation, etc.

• Realize capital gains to take advantage of 15% rate

• Consult with your tax professional on your personal situation

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Five planning strategiesto consider in 2012

2. Accelerate tax deductions if feasible• For 2012, tax benefit of itemized deductions is not

phased out at higher income levels• Many debt reduction proposals have been proposed

recently that would eliminate or reduce tax deductions • Examples of ways to accelerate deductions:

– Prepay mortgage interest or property taxes– Make charitable contributions– Schedule elective medical procedures if likely to

result in significant out-of-pocket expenses

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Five planning strategiesto consider in 2012

3. Review estate plan strategies and documents• With the estate tax exemption of $5 million, it makes sense

to review trust documents• Don’t forget that some states will have their own death and/or

inheritance taxes• Consult with an estate planning attorney to explore options

such as a life insurance trust to create liquidity at death

4. Consider making lifetime gifts in 2012• Individuals can gift up to $5 million currently without being

subject to federal gift tax• Gifting now removes those funds plus any future appreciation

out of your estate

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Five planning strategiesto consider in 2012

5. Hedge against the uncertainty of future tax rates by being “tax diversified”

• Having exposure across taxable, tax-deferred, and tax-free accounts can help retirees better manage their tax billin retirement

• Create tax-free sources of income through Roth IRAs and municipal bonds

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Closing thoughts

•The historically low tax environment is potentially ending after 2012

•There is a risk of a rising tax environment over the longer term as the nation deals with budget deficits

•Consult with your financial advisor and tax professional to discuss potential short-term opportunities while planning for the risk of higher taxes in the future

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A BALANCED APPROACH

A WORLD OF INVESTING

A COMMITMENT TO EXCELLENCE

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This information is not meant as tax or legal advice.Please consult your legal or tax advisor before making any decisions.

Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing.

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