The end of the year brings with it the impetus for review and taking into account any issues needed to be resolved by Dec. 31, and some can help reduce your taxes.
Keep in mind that once you reach age 70 ½, you are required to take a minimum distribution amount from your retirement account annually. According to Christian Brothers Services’ partner Vanguard, if you do not take withdrawals, or you take less than you should, you’ll owe a 50 percent federal penalty tax on the difference between the amount you withdrew and the amount you should have withdrawn. In addition, you’ll still have to withdraw the required amount and pay any income tax due on the taxable amount. Your required minimum distribution for a given year must be withdrawn by Dec. 31.
For help estimating your required minimum distribution, visit https://personal.vanguard.com/us/insights/retirement/estimate-your-rmd-tool?lang=en
A recent USA Today article notes that making qualified charitable donations with that RMD can actually help those who would rather not take the withdrawal, “A 401(k) or IRA withdrawal causes your income to go up for that year, and that may impact your Social Security taxes and increase your Medicare payments. If the RMD instead goes directly to a charity, it stays off your tax return and reduces your income.”
The deductible for medical expenses will rise to 10 percent of your adjusted gross income in January, making it more difficult to write off. The final weeks of December may be the time to take care of some medical expenses, ranging from new glasses to elective procedures.
You still have time to increase your contributions while reducing your taxable income for the year. At age 50, you can add extra “catch-up” contributions annually to your retirement funds. In 2018, you can contribute an additional $6,000 per year to a 403(b) or 401(k) plan and an additional $1,000 to an IRA.
According to TurboTax, you have until April 15, 2019 to make IRA contributions for 2018, but the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred.
Experts agree, as the year comes to a close, it is a good idea to review exactly how much you have spent on your annual expenses. Take a look at your spending habits for the past 12 months and track how that will work into your retirement plans for the future.
For more information on planning for your retirement, visit https://www.cbservices.org/retirement.html