As my prior blog indicated, as the end of the year approaches, your tax liability is beginning to solidify. As the ball drops in Times Square tonight, most of your ability to plan for your 2014 bill goes out with the old year.
- You could make a contribution to a 529 plan yet today.
- You can do annual exclusions for up to 5 years.
- So, if you miss the boat on making a contribution today, you can use future annual exclusions to cover the contribution next year.
- A 529 plan allows tax benefits for contributions, especially when used for qualified education expenses.
- In some states, there is a state income tax deduction or other benefits for contributions.
- Here is an article which I wrote on 529 plans which explains them in greater depth.
- You have until April 15th, 2015, to make a 2014 IRA contribution.
- You could make a contribution to a traditional IRA by that date.
- You could make a contribution to a Roth IRA by that date.
- A Roth IRA can be particularly useful for teenagers and those with very low income.
- With a traditional IRA, you get an income tax deduction upon contribution; the earnings grow tax-deferred; then withdrawals are taxed as ordinary income.
- With a Roth IRA, you do not get an income tax deduction upon contribution; the earnings grow tax-free; then withdrawals are generally tax-free.
- For a taxpayer with little current income the Roth is better because the deduction on contribution with a traditional IRA would be worth little or nothing.
As today is New Year’s Eve, let me wish everyone a happy, healthy New Year!!
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555