Is a Roth IRA conversion right for you this year?

by | Aug 4, 2014 | Blog

Boris BenicIf you have a traditional IRA, you might benefit from converting some or all of it to a Roth IRA. A conversion can allow you to turn tax-deferred future growth into tax-free growth. It also can provide estate planning advantages: Roth IRAs don’t require you to take distributions during your life, so you can let the entire balance grow tax-free over your lifetime for the benefit of your heirs.

There’s no income-based limit on who can convert to a Roth IRA. But the converted amount is taxable in the year of the conversion. Whether a conversion makes sense for you depends on factors such as:

  • Your age,
  • Whether the conversion would push you into a higher income tax bracket or trigger the 3.8% net investment income tax,
  • Whether you can afford to pay the tax on the conversion,
  • Your tax bracket now and expected tax bracket in retirement, and
  • Whether you’ll need the IRA funds in retirement.

Please click here to contact us if you would like us to help you to decide if a conversion is right for you this year. We can run the numbers for you so you make an informed decision.

© 2014 Thomson Reuters/Tax & Accounting

2 Tax Pitfalls of Mutual Funds

by | Jul 21, 2014 | Blog

Personal Finance Highway SignInvesting in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these two tax pitfalls:

  1. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
  2. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.)

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, we’d be pleased to help you assess the potential tax impact and suggest ways to minimize your tax liability.

© 2014 Thomson Reuters/Tax & Accounting