Don’t Forget Your Contributions

If you turned 50 this year you are entitled to a catch up contribution of $5,500 for your 401(k). It is not too late to catch up for 2013. Also, anyone with compensation can contribute to an IRA. It’s the deductibility of the IRA contribution that is subject to income limits. If you are not eligible to do a deductible Traditional IRA then consider a Roth IRA. The Roth IRA contribution limits are significantly higher than deductible Traditional IRAs. If your Adjusted Gross Income (AGI) is below the amounts listed, you can make a full IRA contribution. If your AGI is too high, you still have an opportunity to contribute to a non-deductible IRA. There is no income limit for non-deductible IRA contributions and the assets inside the IRA will grow tax deferred.


Watch Your Capital Gains

Under the tax law there are now four long-term capital gains tax rates (0%, 15%, 18.8% and 23.8%). Old school advice was to tax-loss harvest to erase your gains. For 2013 and beyond, tax-loss harvesting may not be the best advice.  Depending upon your income bracket, if you wait until next year the long-term capital gains rate could increase 23.8% rather than 15%

Roth Conversion Considerations

Roth conversions don’t always carry a tax bill, and you can mitigate a tax bill by pairing tax strategies. For instance, you could increase your charitable deductions to match the amount of your Roth conversion. If a passive activity with suspended losses becomes unsuspended, that would be a great time to consider a Roth conversion. Remember, there are no income limits for Roth conversions. You have until October 15, 2014, to decide if a 2013 Roth conversion makes sense; this “out” is called a “recharacterization.”

Andy partners with individuals, families and entreprenuers to provide objective and comprehensive financial planning. Andy is a Fee-Only, Certified Financial Planner™ and Registered Investment Advisor.