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The Journey: Retirement moves to make this year

McClatchy-Tribune Information Services

January 18, 2016

Face it: You probably could have done more in 2015 to help your retirement picture, and you werenít alone. A Capital One Bank survey released in December found that only a third of respondents accomplished their financial goals last year.

But whether youíre retired or just starting to save, thereís always this year. In 2016, you can double down on IRA contributions, lock in a tax-free charitable donation and make some big dents in your spending, among other moves.

"Making IRA contributions is one of the few provisions left in the tax code that you can do early in the new year to affect last yearís taxes," said Ed Slott, an accountant who produces IRA training workshops for financial advisers and consumers.

While youíre at it, he said, consider tossing a contribution for 2016 into a traditional or Roth IRA, whichever makes the most sense given your age and tax situation.

"If you can go one step further, do a contribution for 2016 early in the year. You can wait until April of 2017, but then youíre back in the same rut," he said. "If you can double up in one year, then youíre always ahead and that tax-deferred money builds up over the years."

If youíre past age 70 1/2 this year, taking your required traditional IRA or 401(k) distribution early could also make sense, he said. It means youíll avoid the year-end rush some financial institutions experience as people scramble to take their distributions, which can lead to administrative errors, he said.

And if you donate to charitable organizations, Congress has made permanent the ability to give to charities through your IRA, have it count toward your required distribution, and not have it affect your adjusted gross income. Now you can make a gift early in the year and bank the tax advantage, Slott said. Previously, when the provision was extended very late in the year, IRA holders typically had already taken their distributions, so for many the provision didnít do much good, he said.

Another bit of permitted retirement-account hindsight involves undoing conversions of traditional IRA money to Roth IRAs. If you converted some funds in 2015, but the market goes south and youíd rather not pay income taxes on the original value, you have until October to recharacterize the conversion, Slott said.

"Itís one of the great second chances in the tax code," he said. "Itís like being able to bet on a horse after the race is over."

Another tax move for 2016 is to plan on delaying taking Social Security benefits until age 70, Slott said, particularly now that the ability to suspend one benefit while collecting the associated spousal benefit and the ability to choose between spousal and worker benefits at full retirement age is being phased out. The tax bonus, he said, comes because as you withdraw more retirement savings in your 60s while waiting to start benefits, you are spending down your retirement savings, which could mean lower taxable distributions in the future, he said.

If you took benefits early, consider suspending them at full retirement age, said Jane Bryant Quinn, author of "How to Make Your Money Last: The Indispensable Retirement Guide." You earn delayed retirement credits through age 70.

Knocking out some major expenses, like a too-large home, is a much better move for retirement than nickel-and-diming yourself, she said. "The big things are where the money is. Once youíve right-sized the big expenses, you wonít need to worry about drinking cheaper coffee," she said.

Quinn also advocates a combination of immediate, fixed annuities within a fixed income strategy and a rising amount of stock index funds as retirees age (up to a ceiling that suits your risk tolerance), reflecting some new research showing that increasing the amount of equities helps retirees stay ahead of inflation.

"Iím getting more aggressive myself, increasing my exposure to equities over the past few years, and I havenít regretted it, even though of course the market at some point will go down," Quinn said.