Tax Tips To Save You Money
Consider converting your traditional IRA to a Roth IRA
Although there are income limits for contributing to a Roth IRA, anyone can convert all or a portion of their assets in a traditional IRA (or other eligible retirement plan) to a Roth IRA. Why might doing so make sense? Unlike with a traditional IRA, qualified distributions from a Roth IRA aren’t generally subject to federal income taxes, as long as the Roth IRA has been open at least five years and you have reached at least age 59½. However, you’ll be required to pay income taxes on the amount of your deductible contributions, as well as any associated earnings, when you convert from your traditional IRA to a Roth IRA—or, if you don’t convert, when you retire and take withdrawals from your traditional IRA.
Depending upon your particular situation, it could be beneficial to convert from a traditional IRA to a Roth IRA and pay taxes now, rather than holding the funds in the traditional IRA and paying taxes upon distribution at a later date. Consult with your tax advisor to see which might suit your circumstances better.
Use stock losses to offset capital gains
Now may be a good time to consider selling certain under performing investments in order to generate a capital loss before the end of the year—which could help offset the capital gains you realize when selling stocks that are performing well. In addition, you may generally deduct up to $3,000 ($1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. If your net capital losses exceed the yearly limit of $3,000 ($1,500 if married and filing a separate return), you can carry over the unused losses to the following year. Note that under the new law, investors will continue to pay long-term capital gains taxes at a rate of 0%, 15% or 20% (depending on their overall income) but with adjusted cutoffs. Married couples filing jointly and earning $78,750 or less ($39,375 for singles) will pay nothing. Married couples filing jointly earning between that and $488,850 (or that and $434,550 for singles) will pay 15%, while married couples filing jointly and earning more than $488,850 or more ($434,550 for singles) will pay 20%.