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Must-have Tools And Tips For Year-end Retirement Planning

Biphoo

9 Dec 2017

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Must-have tools and tips for year-end retirement planning

If you haven’t done so already, now — as in before year-end — would be a good time to review your financial plan and take advantage of any last-minute retirement-planning tools and techniques.

So, what are some of those tools and techniques?

Think taxes now and later

“At the end of the year, we try to bring down the adjusted gross income — the AGI — of our clients to minimize their exposure to taxes,” says Kathi Grace, a managing director United Capital Financial Advisers and author of Prince Not So Charming: Cinderella's Guide to Financial Independence. “We also look for ways to minimize the amount of taxes they will pay later, upon retirement."

Consider Roth IRA conversions and recharacterizations

If you have designs on converting some or all of your traditional IRA into a Roth IRA, it’s best you do it quickly. “For a 2017, conversion funds must be out of the account by Dec. 31, 2017,” says Beverly DeVeny, director of retirement education for Ed Slott and Company. “You cannot do a conversion in 2018 for 2017.”

Grace is also among those who recommend converting traditional IRAs into Roth IRAs. “You can use your tax bracket today to position yourself at an advantage for tomorrow,” she says. “If you believe your tax bracket will be higher later on, converting traditional IRAs to Roth IRAs will reduce the taxes you will ultimately pay when it’s time to retire.”

One caveat about recharacterizations of Roth conversions and rollovers. The House Republicans' proposed tax reform bill does away with recharacterization. A recharacterization allows you to “undo” or “reverse” a rollover or conversion to a Roth IRA, according to the IRS. “If included in a bill that is passed, as written today there will be no Roth recharacterizations in 2018,” says DeVeny.

So, for anyone who did a Roth IRA conversion in 2017 that they might want to recharacterize, they should consider doing the recharacterization now, says DeVeny. “In 2018 they could reconvert the assets if the Roth remains a better option, but they may not be able to recharacterize,” she says.

And, anyone considering a Roth conversion before year-end should keep in mind that they might not be able to recharacterize in 2018, says DeVeny.

Contribute to your IRAs and Roth IRAs now

DeVeny recommends making your 2017 contributions to IRAs and Roth IRAs before year-end so your money has a chance to start growing tax-deferred right away. “The compounding on those assets and their growth can mean a larger account at retirement,” she says.

Also, teenagers and young adults who had a paying job during the year should open and contribute to a Roth IRA, says DeVeny.

Note: You can contribute to an IRA or Roth IRA even if you are covered by an employer plan at work, says DeVeny. “You may not, however, be able to deduct an IRA contribution, but you can still make one,” she says.

According to the IRS, the same combined contribution limit applies to all your Roth and traditional IRAs and your Roth IRA contribution might be limited based on your filing status and income. Details about Roth IRAs are contained in IRS Publication 590-A.

Distributions

Make sure you take before year end all your required distributions, says DeVeny. Those would include required minimum distributions (RMDs) from IRAs or employer plans, required minimum distributions from inherited IRAs, employer plans, and Roth IRAs (there are RMDs from inherited Roth IRAs), and 72(t) distributions.

Of note, year of death distributions must be paid to the beneficiary(ies) of the IRA or employer plan, DeVeny says.

Track the value of your IRAs

Sometime during January, your broker will send you Form 8606. Don’t put it in the shredder. “It is up to the individual to track after-tax amounts in IRAs on Form 8606 which must be filed with the tax return,” says DeVeny.

What’s more, she says individuals under age 59½ must track Roth IRA contributions and conversions to comply with the “ordering” rules for early Roth distributions which are reported on Form 8606 which must be filed with the tax return.

Source:- https://www.usatoday.com/story/money/personalfinance/2017/12/08/must-have-tools-and-tips-year-end-retirement-planning-tips/905088001/

Biphoo

9 Dec 2017

3950 Views