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If I am waitlisted at a school that i really want to go to and that i am pretty sure I would sit out a year and retake the lsat and improve my application for.
Do I let them know that in my loci for this year or is that too dramatic.

I'd guess that might make them LESS likely to take you this year, if there's a chance they can just WL/reject you and you'll come back next year with a better LSAT score for their medians.

Sitting out, retaking, getting in next year is a great idea. Telling them about that is not. I would plan on retaking/reapplying, but don't tell them that if you really want to get in off of their WL.

Plus a higher score might get you sore real $$.

Don't tell them that, write the letter but omit that info.

thanks for the awesome info guys.