February 22, 2010
Think that the time to plan for the 2009 tax year has come and gone? It's true that the door to almost all tax-saving moves for 2009 closed on Dec. 31, 2009. But there are still a few things you can do that will lower your 2009 taxes:
Make regular IRA contributions. Contributions to traditional IRAs for tax year 2009 including deductible contributions by those eligible to make them, can be made as late as Apr. 15, 2010. If you are married you won't be treated as an active participant in an employer-sponsored retirement plan subject to the usual joint filer's IRA deduction phaseout merely because your spouse is a participant
Salvage a late-2009 IRA or qualified plan payout. If you were financially compelled to take a distribution from a traditional IRA or an individual account in a qualified retirement plan late in 2009, but now have the money to replenish the retirement savings, you can avoid taxes on the withdrawal by making a rollover to a traditional IRA generally no later than the 60th day after the day you received the distribution. Thus, for example, you had to withdraw $10,000 from a traditional IRA on Dec. 28, 2009, but now are able to replenish those funds, you can avoid paying a tax on the withdrawal by contributing $10,000 to a traditional IRA no later than Feb. 26, 2010. Even if you don't have the full $10,000, you can reduce your tax by rolling over a lesser amount.
Back out of a traditional-IRA-to-Roth-IRA conversion. If you converted a traditional IRA to a Roth IRA during 2009 you may decide that this wasn't a good tax move after all. For example, you may realize that 2010 would be a better time to make the conversion because your tax bracket will be much lower this year than it was last year. Or you may have made the conversion when the value of the assets held in the traditional IRA was much higher than they are now. You can back out of the conversion by recharacterizing the Roth IRA as a traditional IRA. This involves transferring the converted amount from the Roth IRA back to a traditional IRA via a direct (trustee-to-trustee) transfer.
Turn a Roth IRA contribution into a traditional IRA contribution. In the process of getting together your documents for return preparation you may now realize that a deductible contribution to a traditional IRA for 2009 would be preferable to the nondeductible Roth IRA contribution you actually made in 2009. You can change your mind and get a 2009 deduction.
Shelter self-employment income. If you had self-employment income during 2009 you can shelter part of it by making a deductible retirement plan contribution even if you didn't set up a retirement plan before the end of last year. You can both set up and contribute to a SEP (simplified employee pension) as late as your return due date (plus extensions). For 2009, the maximum deductible contribution generally is 20% of net earnings from self-employment income, or $49,000, whichever is less.
This is useful data but can be dense. For a plain-English translation, call our Tax Department.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).