Face it: You probably could have done more in 2015 to help your retirement picture, and you weren’t alone. A Capital One Bank survey released in December found that only a third of respondents accomplished their financial goals last year.
But whether you’re retired or just starting to save, there’s always this year. In 2016, you can double down on IRA contributions, lock in a tax-free charitable donation and make some big dents in your spending, among other moves.
Making IRA contributions is one of the few provisions left in the tax code that you can do early in the new year to affect last year’s taxes,” said Ed Slott, an accountant who produces IRA training workshops for financial advisers and consumers.
While you’re at it, he said, consider tossing a contribution for 2016 into a traditional or Roth IRA, whichever makes the most sense given your age and tax situation.
“If you can go one step further, do a contribution for 2016 early in the year. You can wait until April of 2017, but then you’re back in the same rut,” he said. “If you can double up in one year, then you’re always ahead and that tax-deferred money builds up over the years.”
If you’re past age 70 1/2 this year, taking your required traditional IRA or 401(k) distribution early could also make sense, he said. It means you’ll avoid the year-end rush some financial institutions experience as people scramble to take their distributions, which can lead to administrative errors, he said.
And if you donate to charitable organizations, Congress has made permanent the ability to give to charities through your IRA, have it count toward your required distribution, and not have it affect your adjusted gross income. Now you can give a gift early in the year and bank the tax advantage, Slott said. Previously, when the provision was extended very late in the year, IRA holders typically had already taken their distributions, so for many the provision didn’t do much good, he said.
Another bit of permitted retirement-account hindsight involves undoing conversions of traditional IRA money to Roth IRAs. If you converted some funds in 2015, but the market goes south and you’d rather not pay income taxes on the original value, you have until October to re-characterize the conversion, Slott said.