‘Tis the season to try and lower your taxes. As the end of 2012 rolls around, it isn’t too late to max out your contributions to either your 401(k), 403(b) or IRA accounts.
Most people know they have until tax day the following year to max out their IRA, but you also can take some of the tax burden off by maxing out your defined contribution retirement plan by Dec. 31.
He likes the Roth over a 529 educational savings plan because “you can totally control how you invest the money,” he said. Also, with a 529 plan, a person will receive a state tax deduction but not a federal one. There also are limited investment choices, like in a 401(k) plan. With a Roth IRA, you have the same investment options as you would in a traditional IRA. You don’t get a tax deduction on your state taxes but you do get to control how your money is invested, he said.
Individuals who want to save even more outside of their 401(k) or IRA plans can utilize a health spending account as an investment vehicle. Health spending accounts are part health savings account and part retirement account. Anyone who signs up for a high deductible health insurance plan sets money aside pre-tax in their HSA account. If they have medical bills, the money to meet their annual deductible comes out of the health spending account. If you don’t have any medical bills, that money will be invested and kept as a retirement savings plan and is a nice way to save more each year, Mogg said.
There are five other taxation issues people need to be aware of in 2013, according to Lee Peterson, CPA, owner of Lee M. Peterson and Associates, LLC. The first is the capital gains rate, which currently sits at 15 percent. That is expected to increase to 20 percent in 2013, so some individuals may want to sell stocks now to capture that lower taxation rate, he said.
The second is the employee’s portion of Social Security taxes. In years past, that amount was 6.2 percent of earnings, but it was lowered to 4.2 percent for 2011 and 2012. “We are watching to see if it will be extended again for 2013,” Peterson said.