Year End Planning: How to Leverage Tax Benefits for Retirement Accounts

As 2008 races to a close, you may be thinking ahead about income taxes.  If you are wondering if there are still ways you can reduce your tax burden before the end of the year, you are in luck.  Below are ways you can still take action to enjoy tax deductions and avoid IRA and 401k retirement plan withdrawal penalties if you act before December 31^st. 

 

IRA Charitable Rollover

 

The Pension Protection Act tax benefit designed for 2007 only has been extended for 2008.  Through this act, individuals 70-1/2 years or older in retirement can make a qualified charitable distribution up to $100,000 directly from their IRA or Roth IRA retirement plans free of income tax. 

 

Contributions must be transferred directly from an IRA account to one or more charitable organizations, and to enjoy this retirement plan tax benefit, the donor must not receive any benefit or value from the contribution.  In the past, direct IRA contributions were included as part of your taxable income.  With this extended legislation, your IRA charitable contributions do not need to be listed as part of your taxable income, and no tax is payable on the donation. 

 

This is also helpful for those who still need to meet their yearly “required minimum distribution” (RMD) from an IRA.  By making a direct charitable IRA rollover, you can prevent penalties on your retirement plan for under withdrawals. 

 

Save Tax on Your Social Security Income

 

You may want to consider withdrawing more than your RMD.  Those in certain tax brackets can withdraw additional IRA income to offset the amount of Social Security Retirement benefit received.  By incorporating this retirement planning strategy, you can reduce the amount of taxability of the Social Security income. 

 

REEP credits

 

Whether or not you are planning for retirement, if you are interested in reducing utility costs and eliminating your carbon footprint, you can receive a Residential Energy-Efficient Property tax credit up to $2,000 for qualified improvements.  The tax efficient investment applies to improvements such as solar energy panels, solar water heating units, or other fuel cell improvements.  Taxpayers are allowed to deduct 30% of the total cost of the property investment up to $2,000, of which any unused credit may be carried over into the next tax year.   To learn more about retirement planning visit www.kenhimmler.com.  

 

Automobile Tax Credits

 

Great for retirement planning and the environment, if you are looking to buy a new car, you can still purchase a new fuel-efficient automobile by the end of the year for a tax credit.  Depending on the make and model, cars such as the popular fuel-electric hybrid can give you a nice tax deduction.  However, you should act quickly.  Many models are being phased out from the tax break, but there are still newer models of Fords and Hondas that enjoy full tax credit if purchased by the end of 2008.

 

Pay Your Property Taxes

 

Often tax assessments are billed in installments over a year period, or are assessed toward the end of the year.  You can still pay all of your current outstanding property tax charge before the end of the year to receive full tax credit for 2008. 

 

With the end of year approaching quickly, there is little time to take advantage of tax advantages for your retirement planning.  Your retirement income is important to you, and maximizing your tax benefits can help you keep more income in your pocket.  You can also take advantage of professional retirement planning professionals to secure further tax relief help.