Fiscal Cliff Financial Planning Part 2

Before the year ends, you can pre­pare with fis­cal cliff finan­cial planning.

In Part 1, I talked about tax plan­ning for the fis­cal cliff. This year is dif­fer­ent than past years because tax experts are pre­dict­ing cap­i­tal gain taxes will go up and there­fore, it might be best for you to take your gain this year and post­pone your loss until next year.

In Part 2 of our series what to do before the end of the year, I’ll address your IRA, specif­i­cally if you have a Roth IRA.

The Fis­cal Cliff and Your IRA

The con­sid­er­a­tion for those of you with a Roth IRA is that if you want to make a con­tri­bu­tion for this year, you have until April 15 next year to do it instead of the Decem­ber 31 dead­line for a tra­di­tional IRA account.

But on Jan­u­ary 1, you can begin con­tribut­ing to your Roth IRA for 2013. What this means is between Jan­u­ary 1 through April 15, you can con­tribute to your Roth IRA twice, once for this year and once for next year.

The eas­i­est thing to remem­ber about con­tribut­ing to your Roth IRA is that for a tax­able year, you can con­tribute from Jan­u­ary 1 of that year through April 15 the fol­low­ing year.

What doesn’t change – for those of you under 50 years old – is the max­i­mum amount you can con­tribute every year is $5,000.

If you’re 50 and older, your annual max­i­mum is $6,000. And even bet­ter, you can catch up pre­vi­ous years when you were 50 and older to get to the maximum.

An exam­ple is if you’re 52 years old and you only con­tributed $4,500 when you were 51, you can con­tribute an addi­tional $1,500 to that year’s filing.

But just as with any year, any con­tri­bu­tion to your Roth IRA means you’ll be pay­ing income tax for the year you con­tributed. The ben­e­fit is that you won’t be pay­ing income taxes when you with­draw that money.

Aside from the Roth IRA con­tri­bu­tion, those of you with a tra­di­tional IRA should con­sider con­vert­ing to a Roth IRA if it ben­e­fits you.

Long-Term Plan­ning Pre­pares You for the Fis­cal Cliff

Most peo­ple see this as a binary event but it’s much more than that. It’s a long-planning cal­cu­la­tion to decide how to max­i­mize a con­ver­sion. And with the upcom­ing fis­cal cliff, it’s more urgent to plan now.

Should you do it all at once? Should you do a cer­tain amount this year? Take your time to decide what’s best for you. Don’t assume it’s all or nothing.

I hope you’ve enjoyed this arti­cle on fis­cal cliff finan­cial plan­ning and also what we pre­sented to you in Part 1.

If you have any ques­tions, give us a call. That first call to us is free.

The views expressed are by Shel­don Har­ber and should not be con­sid­ered legal or tax advice. Please see a qual­i­fied attor­ney or accoun­tant for answers to spe­cific questions.

Investors should care­fully con­sider the invest­ment objec­tives, risks, fees and expenses before invest­ing. For this and other impor­tant infor­ma­tion please obtain the invest­ment com­pany fund prospec­tus and dis­clo­sure doc­u­ments from your Rep/Advisor. Read this infor­ma­tion care­fully before invest­ing. Diver­si­fi­ca­tion and asset allo­ca­tion strate­gies do not assure profit or pro­tect against loss.

You’re best served by an expe­ri­enced finan­cial and tax pro­fes­sional. Asset Strate­gies, Inc. has been serv­ing clients for over 60 years. Visit us at our web­site, www.assetstrategiesinc.com, call us at 314–432-0288 or email me at Sheldon@assetstrategiesinc.com. We also pro­vide ser­vices in Chicago. Call Paul Wedeen at 630–556-4672 or email him at Paul@assetstrategiesinc.com.

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About the Author: Sheldon Harber

Sheldon Harber is President of Asset Strategies Inc. and a CFP ® - Certified Financial Planner. His career started in 1979 with Comprehensive Planning Consultants (CPC). Today, his clients depend on him for experience and expertise to guide their financial affairs.