There are some BIG changes for taxpayers in the creation of the new 2010 Tax Relief/Job Creation Act. How can you best respond to this law? Take a look at these 5 things all taxpayers can proactively do to best take advantage of the changes:
1. With the money you save on the reduction of your social security tax, you should contribute at least that much additional money to your retirement plan.
2. Contribute to your retirement plan in the following order:
- Contribute whatever an employer is willing to match or even partially match
- Contribute to your Roth IRA and if married to your spouses Roth IRA, even if your spouse isn’t working
- Maximize your contribution to your Roth 401(k) or Roth 403(b) if available
- If not available, maximize your contribution to your traditional 401(k) or 403(b)
- If your income is too high to qualify for a Roth IRA, contribute to a nondeductible 401(k).
3. Since we have two more years of low tax rates, make Roth IRA conversions. Consider multiple conversions since you can “recharacterize” or undo them. If you do multiple conversions, you can keep the ones that do well and undo the ones that don’t.
4. Review your wills and trusts. Many, if not most of the wills done for taxpayers with estates of $1 million are now outdated. Not only will you not get optimal results, but your existing wills and trusts might be a huge restriction on the surviving spouse.
5. Now that you can either leave or gift $5,000,000 or $10,000,000 if you are married, you should rethink potential gifts to children and grandchildren without tax laws that would otherwise restrict gifts you would like to make.