Taxes are Going UP!

Take advantage of today’s opportunities.

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Taxes are going up. I’m not just talking about taxpayers that earn more than $200,000. Taxes are likely to be higher for everyone. We all know about the expiring Bush tax cuts, which may or may not be extended for everyone or just some. Unrelated to the tax cuts are new taxes that were part of the healthcare reform law passed in 2010, the expiring payroll tax cut, the alternative minimum tax that already expired in 2011, and many other provisions that have expired or will expire at year end. Prepare to pay more.

There is still time to take advantage of 2012 tax rates, which may turn out to be the lowest we will see in some time. No one knows for sure what will happen to the tax code next year, which is why a Roth conversion is one of the best tax planning strategies available. Converting a traditional IRA to a Roth IRA creates a taxable event in the year of the conversion. That means paying tax on the conversion this year. All future earnings in the account will be tax-free, as long as you wait five years and are age 59 ½ or older when you take withdrawals. The accumulation of tax free earnings will offset the disadvantage of paying taxes now, if the money stays in the account long enough. That breakeven period will be a lot shorter if tax rates increase.

The biggest advantage to the Roth conversion strategy is the ability to “undo” the transaction as late as October 15, 2013. Should the new Congress pass a major tax reform bill next year that lowers tax rates across the board, you can recharacterize your conversion and put the money back into your IRA. It will be like the transaction never happened.

Don’t wait until it’s too late to do anything about rising taxes. Take a proactive approach to tax planning this year. Be sure to check out our other tax planning strategies for 2012.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

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2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437