2013 almost in the books, some last-minute tax moves for
your retirement money could help you start 2014 off
retirees whose income will be significantly lower this
year than it has been or who are picking up
self-employed gigs as they downshift into retirement,
and anyone who turned 70 1/2 this year should pay
especially close attention to these three strategies,
WHILE YOU CAN: If youíve retired but havenít yet
started taking Social Security and large retirement
account distributions, you may be in a sweet spot to
convert some assets in traditional individual retirement
accounts to a Roth IRA, said Chris Benson, an accountant
and financial adviser with L.K. Benson & Co. in
just got out of a client meeting with someone who
retired a couple years ago but hasnít started taking
big 401(k) distributions yet," Benson said.
"Right now heís in a pretty low bracket and just
has some investment income, so weíre looking at
converting some of that money to a Roth."
the thought of paying income taxes to convert to a Roth
by the year-end deadline only to see those assets
decline in value if markets go into a correction in
2014? You can undo the deed by recharacterizing the
conversion by Oct. 15, 2014.
401(K): If youíre picking up some consulting work as
you downshift a career, consider using this time to
double down on retirement savings with an individual
401(k), also known as a Solo-401(k).
deadline for opening a Solo-k is Dec. 31. The plans are
generally for one-owner businesses and the self-employed
but can include a spouse. The appeal is the much larger
contribution limits compared with IRAs.
bonus: Unlike with IRAs, you can keep contributing to
Solo-k plans after age 70 1/2, said David Littell, a tax
professor at The American College of Financial Services.
2013 and 2014, Solo-k owners who are 50 and older can
contribute up to $23,000 in elective deferrals, and up
to 25 percent of compensation, which is calculated
according to IRS Publication 560, Chapter 5.
contributions canít be more than $51,000 for this year
and $52,000 in 2014, in addition to the 50-plus catch-up
with IRAs, there are traditional and Roth Solo-k plans,
so youíll need to decide if you want a tax deduction
now on the contribution or if you want the money to be
withdrawn tax-free later in retirement. If your income
is lower now because of the career downshift, it might
make more sense to consider a Roth.
all IRA custodians offer the Solo-k, so it pays to shop
for one that offers a full selection of investments and
low or no fees.
THE LONG VIEW ON RMDS: If you turned 70 1/2 this year,
you donít absolutely have to take your first required
minimum distribution from your traditional IRA and
401(k) plans by year-end. (Older account holders do need
to take their distributions by Dec. 31.)
the first year of required distributions, you have the
option to defer taking the distribution until April 1 of
the subsequent year. The catch is that youíll have to
then take two distributions in that subsequent year,
which could ramp up your tax bill.
if you havenít already, spend time figuring out if it
would be better to take the distribution in 2013. And
think even longer term about how your income will flow
in retirement and what that will mean for your tax
doing a lot of work covering a longer period of time in
terms of Ďhow should I be managing my overall
retirement income,í " said Robert Keebler, a tax
adviser in Green Bay, Wis. "You canít just look
at this in a one-year window."