The taxes are due in the year you convert at your regular income-tax rate. If you move a large sum all at once that can bump you into a higher tax bracket. Converting in smaller amounts for several years is a wise move, but even then your income will be higher every year. Because taxes are progressive, you end up paying your highest personal tax rate on those converted IRA dollars.
Many people retire in their late 50s or early 60s, years before RMDs begin, which creates a window of time where tax planning opportunities abound. […] Actively engaging in tax planning can boost your after-tax income in retirement by a meaningful amount.
With lower rates now, you can engage in tax arbitrage.
The Tax Cuts and Jobs Act should change the way many people make charitable contributions. Few people will be itemizing expenses because of the doubling of the standard deduction and reduction of deductions allowed. That means fewer charitable contributions will be deductible and the tax benefits from making gifts will be lower.
That’s actually good news for many people. Writing a check is not the most efficient way to give to charity. One of the most efficient ways to give is available only to those ages 70½ and older, and the changes should cause many to gravitate toward what for several years has been one of the smartest ways to give.
It’s known as the qualified charitable contribution (QCD). It was in and out of the tax code as a temporary provisions starting in 2006. But Congress made it permanent in the Protecting Americans from Tax Hikes Act of 2015. Under the QCD you make a charitable contribution directly from your IRA.
To understand the benefits of the QCD, first consider how a charitable contribution from an IRA that doesn’t qualify as a QCD is taxed. When the QCD rules don’t apply, a charitable contribution made with IRA funds is first treated as a distribution to the owner. It doesn’t matter if the contribution is made by a direct transfer from the custodian to the charity, or if a distribution is made to the IRA owner who then makes a charitable contribution. In either case, the amount is included in the gross income of the IRA owner.
Stress doesn’t help us make smart financial decisions. I think it’s fair to say when we are inheriting money it’s often a busy, hectic and stressful time in our lives. Here are a few mistakes you want to avoid if you inherit an IRA or other retirement accounts from a loved one. Don’t let these five mistakes destroy your loved one’s legacy.
Some retirement account mistakes can be fixed. On the other hand, if you make a mistake with an inherited IRA, it will be an extremely expensive lesson to learn. Likely, there will be no way to correct these mistakes or take the sting out of the sky-high cost from the tax man. Mistakes like these are most likely to happen when an IRA owner passes away and leaves his or her IRA to someone other than a spouse or a non-profit organization. In cases like these, we are talking about beneficiaries like a child, grandchild, sibling or just someone they really liked.
Let’s look at some of the most common, non-spouse IRA beneficiary errors.
- Ineligible Inherited IRA Rollovers
- Stretch IRA mistakes
- Not Titling the New Accounts Properly
- Contributing to an Inherited IRA
- Forgetting to Take Required Minimum Distribution
Most investors know that a diversified portfolio spreads out your risk and keeps your returns afloat if one of your investments takes a nosedive. The question then becomes: Where are the best places to invest your money?
While the stock market offers plenty of options for diversification, it's wise to look beyond Wall Street and find other investment vehicles with solid yield potential. We asked members of Forbes Finance Council to share their thoughts on the best holdings to add to your portfolio. From cryptocurrency to health savings accounts, here's what they had to say.
1. Life Insurance
2. Self-Directed IRAs
3. Online Businesses
5. Real Estate Investment Trusts
6. 401(k) Account
7. Health Savings Account