Year End Tax Savings for Retirees (USA Today)

Year-end tax tips for retirees (and those about to be)

Rodney Brooks, USA TODAY 8:49 a.m. EST November 5, 2013

It seems to come faster each year. It's time to begin thinking about your taxes.
What you've done during the year can be pretty important come April. But the implications for people in retirement and those planning for retirement can be huge.
"Managing taxes year-to-year is a great way for retirees to save money in retirement and thereby increase their income throughout retirement," says Jonathan Clements, director of financial education at Citi Personal Wealth Management.
With a good financial adviser, tax planning should be a year-round process, if it's to be effective, not a last-minute rush. But we'll still offer a list of year-end tax strategies. To start, Clements offers five "smaller things you should think about."
1. Minimum distribution. If you are 70½ or older, you must take a minimum distribution from your IRA. Not doing so could result in big penalties. You can delay it until March. But that could cause another problem: You'll still have to take another distribution that year. Don't wait, he says. Take the distribution this year.
2. Take advantage of the catch-up. If you're 50 or older, you're allowed to make additional "catch-up" contributions to your IRA or 401(k). That means once you reach the maximum contribution, you can put an additional $1,000 into your IRA and an additional $5,500 into your 401(k). Making catch-up contributions to a traditional IRA or a 401(k) reduces your taxable income, and therefore, your taxes.
3. Begin to limit the number of accounts. "If you are approaching retirement or in retirement, you should look to simplify your finances," Clements says. "As you get older, you may struggle to keep up with all those accounts. If you narrow it down to one or two, you make easier for yourself, and you make it easier for your heirs."
4. Utilize the gift-tax exclusion. "If you have more (money) than you need, take advantage of the $14,000 gift tax exclusion," he says. "Giving money away is the easiest way to shrink your taxable estate."
5. Beware of risk. "A big decline in the market will be a bigger issue for you," Clements says. Also, particularly after this year, stocks may be worth more, and you may have far more in (capital gains) taxes than you intended.
"One of the great things about being retired is you have a lot of control over your tax bill," Clements says. You can decide how big your tax bill will be. "Take a large amount out of your IRA, or take less. Sell that mutual fund this year or next. One way you can have more income over time is to be careful about when you realize taxable income."
For example, he says, one mistake people make is having a year with no taxable income, odd as that sounds. "You just retired, you are 63, haven't claimed Social Security and have not taken money out of an IRA," he says. You live off your ordinary savings. "You could end up with no taxable income for that year. That would be a terrible, terrible waste. You are missing a chance to get money out of an IRA or sell mutual funds and have a low tax rate."
You could convert a regular IRA to a Roth IRA, says Chris McIntire, president of McIntire Retirement Services in Perrysburg, Ohio. "I had a client who could convert $20,000 from his IRA to a Roth, and that still kept him in the 10% federal tax bracket."
Other tax-saving suggestions:
• Roth conversions. "We encourage people to do Roth conversions before they start Social Security," McIntire says. "People who have large IRAs may want to. If they are in a 15% tax bracket, they can pay taxes at known rates as opposed to unknown rates (later in retirement)."
Converting to a Roth makes sense for a number of reasons, says Charles Massimo, CEO of CJM Wealth Management in Long Island, N.Y. "There are no minimum distributions. It is a tax-free distribution. A regular IRA is taxed at the ordinary income rate."
• Consider tax-advantaged mutual funds, says Massimo. "Understand the difference between tax-advantaged mutual funds, vs. non-tax advantaged. Non-tax advantaged owners would pay higher taxes. They are probably paying 20% to 30% more in taxes a year if they own a non-tax advantaged fund."
• Sell losers. Some people still have big losses carried forward from the 2007-2009 bear market. "With the tremendous performance of the stock market, this could be a good year to offset some of those capital gains with capital losses," says McIntire.
• Harvest gains. "If they are in the 10% or 15% income bracket, the capital gains could be 0%," he says. "Harvest some of those gains as we get late in the season, and minimize capital gains taxes."
• Switch to an index fund, says McIntire. "You have a mutual fund where a manager does a lot of trading. He may be rebalancing for next year. That would cause capital gains distributions that some people may not want."
• Draw down your IRA before you have to take the minimum distribution at 70½, says Clements. If people wait, he says, "because they are making a large required distribution, it triggers taxes on your Social Security." From 50% to 85% of your Social Security income can be taxable, depending on income, says Clements. "One way retirees can save on taxes is draw down IRAs before they reach 70½. People refer to it as 'tax torpedo.' "
"There are so many ways retirees can save on taxes, using income from a portfolio," says Massimo. "The key is a financial adviser who knows how to do that for them."

Last Minute Tax Savings (WSJ)

The 10 Money Moves to Consider Before 2010 Expires Did You Give Holiday Gifts to Co-Workers? You Might Be in Luck on Taxes.

By JENNIFER OPENSHAW

New Year's Eve is almost here, but don't let that stop you from making some important money moves now, before Dec. 31, so you can reap the benefits in 2011.

Michael Casey says that with New Year's Eve almost here, you will want to consider these important money moves before year end to reap benefits in 2011.
.1) Take investment losses. The end of the year is a great time to review your portfolio and your asset allocation. If you have a dog of a stock or mutual fund that you want to eliminate, it is often a good idea to do it by Dec. 31.

The losses you take can offset the gains you have realized on other stocks or funds and help reduce your tax bill.

For example, say you sold your Apple stock and made $10,000. But you have a poor-performing fund relative to other options that, if you sold it, would result in a $5,000 loss. When taken together, the losses from selling leave you with a net taxable gain of $5,000, far less than had you not sold the investment dog.

2) Max-out your retirement accounts. Many companies have reinstated their 401(k) matching contribution after wiping it out during the recession. But even if not, your 401(k) is still one of your top savings vehicles, and you should fund it as much as possible by year-end. The maximum contribution in 2010 is $16,500 plus $5,500 for those 50 and older.

3) Check your paycheck withholding. The new tax law means your take-home pay next year likely will be higher, thanks to lower Social Security taxes, which for most workers will be cut to 4.2%, from 6.2% now.

So, make sure you aren't having too much or too little withheld. Too much means Uncle Sam is earning interest on your money (though you will get a refund) and too little means you will have a tax bill.

While it is always a good idea to review your withholding annually, the new changes make it even more important. You should also review your withholding if you are an individual or couple with multiple jobs, are having children, getting married, getting divorced or buying a home, or are someone who typically winds up with a large refund at the end of the year.

4) Deduct holiday gifts up to $25 for business. Did you give any holiday gifts to co-workers, vendors, or prospective customers or partners? If so, you will want to keep those receipts since you will be able to deduct up to $25 for such gifts.

This means the $25 for those gourmet chocolate pretzels or toward tickets to the theater would actually run you about $17 out-of-pocket, depending on your tax bracket.
Also, you will want to include anything deductible for your holiday party so long as it had a business purpose.

5) Give to a relative and reduce your tax bill. We have written before about all the ways grandparents or simply those who have some extra wealth can help others, especially someone trying to close the college funding gap.

Give the gift of education or something else worthwhile while you are alive and you will not only reduce your taxable estate, but you will enjoy seeing it put to use.

You can give up to $13,000 a year to someone if you are single ($26,000 if married) without facing gift taxes. If you contribute to a "529" college-savings plan, however, you can front-load your gifting and give up to five times that amount in one year—that is $130,000 if you are a couple—without facing a gift tax. Nice.

6) Donate to a charity. 'Tis the season to give, and if you have been one of the lucky ones who did better financially than you expected, maybe you are up for sharing more of it. You can give cash or stock to a charity, but what's better?

If the stock is worth more than you bought it for, you are usually better off donating it to charity instead of selling it. That allows you to avoid the capital-gains tax on the profit. For example, say you bought 100 shares of a stock at $10 per share and they are now worth $30 per share.

If you donate the stock to charity, you won't have to pay the capital-gains tax on the $2,000 in profit. If you have had the stock for at least a year, you will also be able to deduct the fair-market value of it on your taxes, as long as you itemize.

On the flip side, if the value of the stock is less than you bought it for, you will probably want to cash it first so you can deduct the loss.

Of course, donating money is usually deductible (as long as you itemize). And if you are donating your services, remember that only mileage, not your time, is deductible.

7) Make an estimated tax payment early. If you didn't pay enough to the federal government last year, you may face an even bigger tax bill come April 15. For instance, maybe you didn't have enough taxes withheld from your paycheck or you made a chunk of money on an investment. If you pay estimated taxes, consider paying by Dec. 31.

8) Pay January's mortgage in December. Similarly, making a mortgage payment early will increase your mortgage deduction for 2010.

Perhaps all the talk about possibly eliminating this valuable deduction might spur you to move on this one.

9) Enroll in your employer's flexible-spending account. These accounts allow you to sock away up to $5,000 (the maximum amount varies by employer) on a pretax basis, much like a 401(k), to cover out-of-pocket health-care costs. Also, find out whether your employer offers a similar benefit for child-care expenses.

Open enrollment is typically the only time to make changes to your plan and that is usually in November. However, you may be able to make changes if you have experienced a "qualifying life event," such as a marriage or divorce, a new child, a change in your employment or you go on family medical leave.

10) Contribute to your IRA. While you have until April 15 to fund your IRA, whether a Roth or traditional, getting it done before then will leave you with one less thing to worry about.

At a minimum, get the paperwork done to open an account if you don't have one already. The maximum you can contribute is $5,000 and an additional $1,000 for over-50 retirement savers for a total of $6,000. And don't forget your nonworking spouse—you can save for him or her, too.

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