“Healthy Finances”
by Alan Crews | Financial Advisor
Ameriprise Financial
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IRA contributions:  You have until April 18 to make an IRA contribution for 2010!  There are income eligibility restrictions (lower limits for traditional IRAs; higher limits for Roth IRAs), but many people qualify for a $5,000 contribution ($6,000 if age 50 or older).  You may also be able to contribute to an IRA for your spouse, even if he/she didn’t have any 2010 income.

“Back-door Roth IRA”: Due to a change in the rules last year regarding Roth IRA Conversions, you may be able to indirectly contribute to a Roth IRA (by April 18), even if your 2010 income level is too high to allow direct contributions.  This strategy won’t work for everyone, particularly if you already have an IRA funded with pre-tax dollars.  But in the right situation, the strategy works beautifully.  Don’t assume that a high income will exclude you from this opportunity.

Excess IRA contribution: If you have already made your 2010 IRA contribution, but recently discovered that your contribution should have been restricted, there is a process for making a timely correction and avoid an IRS penalty.  You may be able to leave the excess contribution in the IRA by applying it to 2011.

Roth IRA Conversion: There’s no upcoming deadline for making a conversion, but if this is an appropriate action for you to take, sooner is usually better.  Another benefit:  you get a free “do-over”.  You have until October 2012 (that’s over 18 months from now) to change your mind and “undo” a 2011 Roth Conversion.

Required Minimum Distributions (RMDs):  If you turned 70 1/2 last year, then you were required to take your 2010 RMD by April 1, 2011 (and that’s NOT an April Fool’s Day joke!).  However, you are still required to take your 2011 RMD by December 31 of this year.  If you have not done so yet, plan accordingly.

2011 Reduction in FICA:  The tax package signed into law in December included a 2% reduction in employee Social Security taxes for 2011 only.  For someone making $100K per year, that is an effective $2,000 raise this year.  If you have not done so already, plan to use this extra money wisely.  Pay off any high-interest-rate debt you may have.  Build up your emergency cash reserve.  Increase your long-term saving for retirement, children’s college, etc.  If appropriate, set up an automatic way of using this extra 2% pay hike.  But don’t let it just fall through the cracks.

Alan Crews | Financial Advisor
Ameriprise Financial
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