Equifax

Finance Blog

How to Protect Yourself from Possible 2013 Tax Hikes

Written by Ilyce Glink on December 3, 2012 in Retirement  |   2 comments

Many consumers are worried about how to protect themselves from potential 2013 tax hikes. We talked with Certified Financial Planner Rick Rodgers, who discusses how to handle the potential changes coming next year. Please consult your own financial planner or tax advisor before acting. Q:…

Many consumers are worried about how to protect themselves from potential 2013 tax hikes. We talked with Certified Financial Planner Rick Rodgers, who discusses how to handle the potential changes coming next year. Please consult your own financial planner or tax advisor before acting.

Q: How will a tax hike in 2013 affect IRAs, and why should people consider converting from a traditional IRA to a Roth IRA?

Tax rates may or may not go up in 2013, but it is highly unlikely they will ever be lower than 2012 rates. Converting in 2012 will create a taxable event at today’s low rates, avoiding distributions later when tax rates are possibly higher.

Q: Are there any circumstances under which converting from a traditional IRA to a Roth IRA would not be advisable, even with a tax hike in 2013?

Anyone who has a significant tax event already happening in 2012 (a large bonus, exercised stock options, a large capital gain) should probably not convert.

Q: What potential complications can arise from converting?

Those who itemize deductions could lose some of those deductions. Social Security benefits could become taxed. Medicare premiums could increase. It’s important to do tax projections to determine the optimum amount to convert.

Q: What is an advantage to doing a Roth conversion before 2013?

It’s a chance to pay tax at lower rates on income that will eventually be taxed, especially for anyone that is going to be subject to the new Medicare tax under the health care reform. Distributions from IRAs are not subject to the tax, but taking them could push other income over the threshold. Converting an IRA now will avoid (or lessen) those forced distributions at age 70 ½.

Q: Will any penalties or fees be incurred for undoing the transaction?

There are no IRS penalties or fees for undoing the transaction as long as it is completed before the filing deadline. The deadline is normally April 15, but it can be extended to October 15.

Q: Why is a Roth conversion one of the best tax-planning strategies available now?

The conversion can be undone as late as October 15, 2013, which gives the taxpayer a chance to see what will happen with the tax laws after the election.

Q: What if the conversion causes one’s income to exceed $100,000?

Everyone is now free to convert a traditional IRA to a Roth. The $100,000 cap on adjusted gross income (AGI) was lifted in 2010.

Q: What is the easiest way to convert to a Roth IRA?

Assuming the investments in the IRA are still performing well, simply move the existing investments from the IRA to a Roth. Conversions do not have to be done in cash like Roth contributions.

Rick Rodgers is a Certified Financial Planner and president of Rodgers & Associates in Lancaster, PA. He is a Certified Retirement Counselor and a member of the National Association of Personal Financial Advisors. Rodgers has been featured on a national radio and TV shows, including FOX Business News and the 700 Club. Find him at www.RodgersSpeaks.com.

2 comments

  1. Crash says:

    How much money do you have to pay to convert? Can you put the fee on a credit card? Can you pay the fee in payments?

  2. Kathy says:

    My husband is within 4 years of retirement. We are afraid to leave our iras in the stock market, but of course cds pay nothing. Also, there has been talk of the government taking over our iras and managing them (think the social security fiasco). What is the best way to prevent losing your ira money to the government? Some of my clients are purchasing rental property with their iras/roths thru a trust acct. Is this a smarter way to have your money invested?


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Retirement Archive

Stay Informed Sign up for our FREE Equifax email Newsletter