Retirement Guys: Year-end investment deadlinesWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
In just a few short weeks we will be ringing in another new year. If you are like us, this year has just flown by. Certain type of investment decisions need to be made in order to take advantage of this year’s taxes. Here is a guide and what you might need to do.
Required minimum distributions
Most retirement account owners over the age of 70½ need to take a required distribution before the end of the year or face a 50 percent tax penalty on the amount not withdrawn. The IRS states that it is the responsibility of the retirement plan participant or the account owner to take the correct amount out. If a loved one has recently passed away, required minimum distribution can also apply to beneficiary of a retirement account that was inherited. Often investment companies require paperwork to be completed in order to take a withdrawal from a retirement account. Investors who are not sure if a withdrawal is required should take action right away.
Investors who believe that their personal tax rates will be higher in the future then they are going to be this year, should also consider a Roth conversion before the end of the year. Roth IRAs can provide tax free income in the future for qualified withdrawal by the account owner or beneficiary if it is held for at least five years and distributions are taking after 59 1/2. Roth IRAs can provide younger investors access to contributions, not earnings, without taxes or penalties, unlike traditional retirement accounts. Older investors with low taxable income can also benefit from a Roth conversion. For example, a retirement account owner who was in between jobs or a business owner that plans on having more profitable years in the future could benefit from a Roth conversion while their current rate is low. Retirement account owners who are in low income tax brackets could also benefit their loved ones by doing a Roth conversion during their life, instead of leaving a fully taxable traditional retirement account to beneficiaries.
Taxable income planning for health care
We recently met with a client who was 65 and his wife was 62. Their concern was how to get affordable health care, especially for the wife since she wasn’t eligible for Medicare coverage yet. We got together with them and a health insurance specialist and looked into options under the Affordable Care Act on www.healthcare.gov. Deadline for coverage for Jan. 1 is Dec. 15. Americans with lower income can qualify for savings on their monthly health insurance cost. For this particular family, if they took their IRA distribution this year for what is the expected 2015 needs, they could get a 40 percent reduction in their monthly heath insurance cost. Plus, those who own a health savings account (HSA) can save additional money in taxes because contributions can be 100 percent tax deductible from gross income. In 2014, individuals can save $3,300 and family’s can save up to $6,550. HSA account savers over 55 can add an extra $1,000.
Capital gain and loss planning
Taxable investment account owners only have till Dec. 31 to make decisions on what to sell to take advantage of current tax laws. An investor in the 15 percent or below tax bracket can sell appreciated investments and pay no federal income taxes. Investors, at any federal tax bracket, can also benefit before the end of the year by reviewing what investment have been and or need to be sold.
Parents who have what they feel is more than enough money to live comfortably for the rest of their lifetime, could consider gifting an investment for the holidays. Instead of just leaving the money to beneficiaries when you pass away, did you know that you can give money away while you are alive? In 2014 the annual gift tax exclusion amount is $14,000 per person to any number of people. That means a husband and wife could each gift $14,000 to an individual for a total of $28,000 to each person and these gifts will not be taxable.
Don’t forget to get some advice
Keep in mind, our column is general in nature and points out some of the important deadlines that investors need to pay attention to. Before any action is taken, we recommend that you seek the advice of a tax professional and see how these or other ideas apply to your own individual and unique situation. Remember the clock is ticking so take action right away.
For more information about The Retirement Guys, tune in every Saturday at 1 PM on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550