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Thursday, October 18, 2012

How Advisors Can Use 2012 Tax Breaks Before They Disappear


Most people, not just those earning more than $200,000 a year, probably will be paying more in taxes next year, says Lancaster, Penn.-based planner and retirement specialist Rick Rodgers.
The good news is clients still have time to take advantage of 2012 tax rates, which may turn out to be the lowest available for some time. Rodgers offers three strategies that can be implemented before the end of the year:


Do a Roth Conversion: Converting a traditional IRA to a Roth IRA creates a taxable event in 2012, Rodgers says. All future earnings in the account will be tax-free, as long as you wait five years and are age 59½ or older when you take withdrawals. But, he points out, the single biggest advantage to doing a Roth conversion now is the ability to “undo” the transaction as late as Oct. 15, 2013.


“Should the new Congress pass a major tax reform bill next year that lowers tax rates across the board, you can put the money back into your IRA,” Rodgers says. “It will be like the transaction never happened.”


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