MONEY 25 - TAXES/RETIREMENT ACCOUNTS

THIS IS MY 25^TH POST ON UNDERSTANDING MONEY TOOLS

Money, Money, Money.  This will be a short blog to get your mind going on upcoming tax changes.  I would render the advice to see your tax advisor or accountant on what appears to be coming down the pike.

For one, if you are selling real estate owned by you and have held it over 12 months you are currently eligible for long term Federal capital gains tax.  This rate has been 15% for some time, however the tax rate will go up. Rather than trading a piece of “like property”, for instance real estate for real estate under a 1031 Exchange you may be better off paying the tax at 15% rather than deferring taxation with a trade. Eventually you will be paying a higher tax rate.

If you have stocks held over one year and are thinking of selling, consult your broker or advisor in this area so you can take advantage of the 15%.

Another area of interest would be IRA’s and investments in them.  Consult your advisor to see if it may be wise to start a Roth IRA, or sell some assets out of your current IRA and place the money in a Roth IRA.  A Roth IRA is for money you have already paid taxes on. Any compounding in the Roth IRA is tax exempt, and then when you are eligible to take money from your Roth IRA it is tax free.

If you roll the money from one retirement custodial account to another it is advisable to do so directly versus taking a withdrawal as we all must place the money into a new account within 60 days.  If you miss the time permitted time period there is a penalty of 10% plus ordinary income taxes owed to the government.  There are two numbers you should remember, 59 1/2 and 70 1/2. You cannot take a withdrawal of this retirement money except in certain situations, such as for education, before the age of 59 1/2. And, you must take money out of your retirement account at age 70 1/2.

A quick story.  A friend of mine had about $850 in an IRA and was quitting their job.  Needing the money, they did not roll it into another retirement account thinking the government had “bigger fish to fry”.  Well, in this computerized world a few years after they did this, the government sent them a notice that they owed the 10% penalty, earned income taxes on the withdrawal and interest penalty…..ouch, there wasn’t much of the $850 remaining.