Taxpayers should take care to remember several important retirement tax tips at the end of year 2013.
- Make 401(k) contributions in 2013. Taxpayers have until the end of the calendar 2013 year to make 401(k) contributions. This might mean increasing your contributions on December paychecks to make sure you are saving for retirement in the most tax efficient manner. Almost all workers can contribute up to $17,500 in 2013, plus an additional $5,500 if the workers are age 50 or older. Contributions to workplace retirement accounts must be made by Dec. 31 to qualify for a tax deduction on your 2013 return and to get any 401(k) match your employer is offering for 2013.
- Take required minimum distributions before year end. Investors over age 70 1/2 must take IRS required minimum distributions from their retirement accounts (IRA or 401k) before the end of 2013. The amount that should be withdrawn is generally calculated by dividing your account balance by an IRS estimate of taxpayer life expectancy. A spouses age may be factored in some circumstances. If a taxpayer does not withdraw the correct amount, they must pay a 50 percent tax penalty on the amount that should have been withdrawn.
- Optional: Donate Required Minimum distribution to charity. As mentioned above, investors need to pay income tax on the amount withdrawn from their traditional 401(k)s and IRAs and they will be required to take a minimum distribution. However, those age 70 1/2 and older can satisfy the minimum distribution requirement and avoid income tax by donating up to $100,000 directly from their IRA to a qualified charity. See more information on donating money from an IRA to charity
- REMEMBER: Invest Earnings into an IRA or Roth IRA. Taxpayers have until April 15, 2014, to contribute up to $5,500 to a traditional or Roth IRA, or $6,500 if they are 50 or older. If you wait until 2014 to make an IRA contribution you will claim on your 2013 tax return. You will also need to make special adjustments in the investment account that you are using. Generally, the company running the investment account may report to the IRS that the contribution is for the year the sponsor received it unless you specify otherwise.