Year End Retirement Tips 2013

by Richard F. O’Boyle, Jr., LUTCF, MBA

As another year winds down – and another begins – it behooves us to take a look at our current retirement plans and make necessary adjustments.

Retirement Plan Contributions for 2013

You may have limited time to maximize your retirement plan contributions for the tax year 2013. Most people can stash money into traditional IRAs and Roth IRAs as late as April 15, 2014 (for tax year 2013), but some plans have to be filled before December 31, 2013.

The annual limit for traditional IRAs and Roth IRAs is $5,500 for 2013 ($6,500 if you are over age 50) – and must be deposited by April 15, 2014. Company-sponsored and Union/Non-Profit plans such as 401(k), 403(b) and 457 plans allow 2013 contributions up to $17,500 or $23,000 (age 50+).

If you have not yet maximized your 401(k) contribution for this current year, you may want to change your contribution percentage before the end of the year. You can increase the percentage of your salary that is contributed (and reduce your take-home pay). Contributions to deferred plans reduce your current taxable income.

Retirement Plan Contributions for 2014

The IRS has left retirement plan contributions for 2014 at the same levels as 2013. But the thresholds for qualifying for Roth IRAs is increasing slightly. If your adjusted gross income is less than $129,000 (for singles) or $191,000 (for married persons filing jointly) then you are eligible to contribute to a Roth IRA. Eligibility starts to phase out if you earn more than $114,000 (singles) and $181,000 (couples).

Year-End Tax Strategies

If you want to reduce your taxable income for 2013, you may consider paying off more expenses that you can deduct. For example, some people will prepay their real estate taxes, homeowner’s insurance premiums or make mortgage payments in advance that would normally be due in early 2014.

Deductions for Medical Expenses

For 2013 the amount of medical expenses required to reach the deductible threshold has increased for people under age 65.  You must have medical expenses greater than or equal to 10% of your adjusted gross income in order to be able to deduct them. People aged 65 and older only need expenses of 7.5% through 2017.

Health Insurance Individual Mandate

Beginning in 2014, individuals are required to carry health insurance either through their employer or individually. In order to set an individual plan in place for a January 1, 2014 effective date, people shopping on the government Insurance Marketplace (http://www.healthcare.gov) and for New Yorkers (http://www.nystateofhealth.com) must sign up for (and pay for) a plan by December 23, 2013. The actual mandate kicks in March 31, 2014.

Health Savings Account Contributions

If you have a high-deductible health insurance plan that includes a tax-preferred Health Savings Account, you can still maximize your contributions for 2013. The contribution limit for 2013 is $3,250 for individuals and $6,450 for families. The maximum takes into account both employer and employee contributions to the HAS. For those 55 and older the maximum is increased by $1,000.

Social Security and Medicare in 2014

The Social Security Administration will increase benefits by 1.5% in 2014. Medicare Part B premiums will remain at $104.90 per month, but high-income individuals will see the surcharge for Part B and Part D increase slightly.