Last-Minute Tax Moves Could Help You Catch Up
There are just a few weeks until tax returns are due. Even if you're almost ready, make sure you don't miss tax moves regarding your individual retirement accounts that could potentially reduce your tax bill.
One big break came last year: As of 2010, anyone—regardless of income—can convert a regular IRA to a Roth, which generally allows earnings and contributions to be taken out tax-free after age 59 1/2.
You have to pay tax on the IRA money you convert to a Roth, and 2010 is the only year that gives a choice of when to pay it.
Elda Di Re, a tax partner at Ernst & Young, says taxpayers have the choice to either volunteer the tax with their 2010 return or defer the tax and pay half in 2011 and half in 2012. "If you think your tax rate in 2011 and 2012 will be no higher than your rate in 2010, it makes sense to defer it," Di Re says.
You also have until April 18 to make a deductible IRA contribution that can still count for 2010. As long as your income is less than $109,000 for married couples and $66,000 for individuals, up to $5,000 in contributions are tax deductible.
If you're 50 or over, you're eligible to contribute an extra "catch-up" contribution of $1,000, bringing the maximum contribution to $6,000. Contributions are generally not tax deductible after age 70 1/2.
Another easily overlooked deduction: the time and money you spend on figuring out where to invest that retirement savings. Di Re says if you are reading periodicals or have investment management expenses, remember to take those as your itemized deductions.
If these tax tips apply to you, take action to either reduce your bill or, even better, add more gold to your golden years.