With the eleventh hour of 2012 agreement to avert components of the so-called “fiscal cliff,” nearly all taxpayers have been affected in some way. With that in mind, there are many things you can do this year to prepare for potential additional tax changes and take control of your financial situation.
Below are 10 options from Thrivent Financial for Lutherans for you to consider as you plan for your financial future in 2013 and beyond.
l Consider an IRA-qualified charitable distribution. People 70-and-a-half and older, who are required to take minimum distributions from their traditional IRAs, might give up to $100,000 directly from their IRAs to qualified charities. This will satisfy the required minimum distribution, or RMD, requirements and no taxes will be due on the contribution amount.
l Know your tax bracket. Now that tax rates are higher at some levels, it’s important to know the tax bracket you fall into. Ask your financial representative and accountant about strategies to keep your taxable income at a reasonable level.
- Consider converting a traditional IRA to a Roth IRA. Given current historically low federal tax rates, you might want to consider locking in now and paying taxes while rates are low for most people. If you choose to convert later, you might be doing so at a higher rate.
- Look closely at your 401(k) contributions. You might want to consider making after-tax Roth 401(k) contributions due to the low tax rates. Conversely, higher-income earners might want to focus on making pre-tax 401(k) contributions to decrease their taxable income.
- Consider investing in municipal bonds. The interest earned on municipal bonds is generally exempt of federal income tax and can help to diversify your overall portfolio
- Consider cash value life insurance. In addition to protecting your family financially after you die, fixed cash value life insurance also can help you reach your broader financial goals while you’re living by helping you to diversify your assets.
- Understand the benefits of inherited IRAs. They can help your beneficiary take distributions over the maximum period allowed by federal required minimum distribution (RMD) rules, and give your assets the potential to continue to grow tax-deferred for your heirs.
- Consider harvesting long-term capital gains. Sell eligible assets while top tax rates for most taxpayers on long-term capital gains is just 15 percent
- Consider using unneeded life insurance and annuity contracts to pay long-term care insurance premiums. The exchange might be free of federal income taxes and help preserve your estate and way of life. This is especially important to households hit by the 3.8 percent Medicare surtax and higher income tax rates.
- Review your financial and estate strategies. Based on history and our debt situation, it’s likely federal (and state) income tax rates will increase sometime in the future. Review your financial and estate strategies and take appropriate actions now that estate law is permanent.
Thrivent Financial is represented in the local area by Dana Erickson, ChFC, CASL Her office is at 204 Third St. South in Stillwater. She can also be reached at 651-439-7091