There is still time to reduce
your 2012 tax liability by making an IRA contribution before the filing
deadline of April 15, 2013 (but please don’t wait until the last minute). You may be able to contribute up to $5,000
for 2012. If you are over age 50, you
may be able to contribute up to $6,000*.
If you are married and both over age 50, you could save up to $3,360
combined in Federal Income Tax for 2012 (28% tax bracket) provided that both of
you have contributed up to the $6,000 threshold. Not only would your tax burden be reduced by
$3,360, your $12,000 combined IRA contributions would continue to grow tax
deferred until withdrawal at retirement age.
Another option to consider is a Roth
IRA contribution up to the same $5,000 limit. Similarly, those over 50 can contribute up to
$6,000**. There is no immediate tax
benefit to the Roth IRA as after tax dollars are used to fund this retirement
vehicle. However, the benefit is that
the Roth IRA is allowed to grow free of Federal and State tax. Unlike the traditional IRA, there is no tax
due when you begin to take money out at retirement age***. Because Roth withdrawals at retirement are
not taxable, they can provide the additional benefit of tax bracket
management. Simply put, money taken from
a Roth IRA at retirement might allow one to control in which tax bracket they
fall. Roth IRAs can be a consideration
for those who will be in the same or higher tax bracket upon retirement.
If you have already maximized
your 2012 IRA (and Roth IRA) contributions, 2013 contributions can be made with
new increased limits. The contribution
limits for 2013 are $5,500. If you are
over age 50, the new limit is $6,500 per person. To help facilitate 2013 contributions, you
may wish to consider setting up monthly automatic checking deductions. Please let us know if you would like to
consider this option.
Please contact us as soon as
possible if you would like to make a 2012 IRA contribution or if you have any
questions related to IRA contributions.
The Portfolio Advisors Team
*If you are
covered by a company retirement plan, the phase out range for IRA deductibility
is $92,000-$112,000 (married filing jointly).
If you are not covered by a company plan but your spouse is covered, the
phase out range is $178,000-$188,000.
**Roth IRA
phase-out limits for a married couple is $173,000-$183,000.
***Roth
earnings are subject to Federal and State taxes as well as penalties if taken
before age 59 ½.
