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3 IRA Strategies that Will Save You Taxes and May Increase Your Tax Refund


3 IRA Strategies that Will Save You Taxes and May Increase Your Tax Refund 

BrookWeiner, LLC


Isn't the last thing we all really want to do is pay more taxes to the government? If you follow one of the three tax strategies outlined below, we guarantee to put some money back into your bank account.

1) Back out of an IRA conversion.

If you converted a traditional IRA into a Roth IRA in 2014, you knew you'd have to report the taxable part of the traditional-IRA withdrawal on your 2014 tax return. But you may not have planned on a year-end surge in your income (for example, from a bonus or stock market gains). That extra income propelled you into a higher tax bracket, or will rob you of tax breaks (such as the education credit) that phase out at higher levels of adjusted gross income (AGI). You can't back out of your bonus or stock market gains (nor would you want to!), but you can back out of that taxable Roth IRA conversion. Through a mechanism known as "recharacterization”, you can undo the conversion and turn the Roth IRA back into a traditional IRA.

Net result: Without the taxable income from the conversion, you may avoid being taxed in a higher bracket and/or may keep your AGI below the point where you would lose tax breaks.

2) Turn a nondeductible Roth IRA contribution into a deductible IRA contribution.

Did you make a Roth IRA contribution in 2014? That may help you years down the road when you take tax-free payouts from the account (if you're eligible), but the contribution isn't deductible. If you realize you need the deduction that a contribution to a regular IRA yields, you can change your mind and turn that Roth IRA contribution into a traditional IRA contribution (again, via the "recharacterization" mechanism). The IRA deduction is yours if neither you nor your spouse is covered by an employer-provided retirement plan. If either you or your spouse is covered by an employer-provided retirement plan, then the deduction starts to phase out when AGI exceeds certain limits, depending on filing status (for 2014, the phaseout for joint filers starts at $96,000 of AGI; for 2015, the phaseout for joint filers starts at $98,000 of AGI).

3) Make a deductible IRA contribution, even if you don't work.

As a general rule, you can't make a deductible IRA contribution unless you have wages or other earned income. However, an exception applies if your spouse is the breadwinner while you manage the home front. For 2014 (and 2015), you can make a deductible IRA contribution of up to $5,500 ($6,500 if you are 50 or over) even if you have no earned income. What's more, even if your spouse is covered by an employer-provided retirement plan, you can still make a fully deductible IRA contribution as long as your joint AGI as specially computed doesn't exceed $181,000 ($183,000 for 2015). To be deductible for the 2014 tax year, the IRA contribution must be made no later than your tax return due date.

If you would like to discuss with us how these complex rules apply to you or your family members, please call our office at (312) 629-0900.

Disclaimer: The information in this article is general in nature, and is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.

© 2015 Thomson Reuters/Tax & Accounting. All Rights Reserved.