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Year-end benefit and retirement issues to address

With outstanding student loan debt over $1 trillion,

With outstanding student loan debt over $1 trillion, now's the time to get a leg up on your education savings with a 529 plan. Credit: iStock

Last week I reviewed investment moves to make before year-end. Today, we tackle employee benefit and retirement issues, as well as other savings ideas.


Use your flex account or lose it.

Some employers require employees with flexible spending accounts (pretax dollars that pay out-of-pocket medical and child care expenses) to forfeit contributions that go unused by Dec. 31. If you have an FSA, check your company's rules. If you have cash sitting in the account and your deadline is year-end, spend it to avoid leaving money on the table. Although the IRS has made a change that will allow you to carry over $500 of unused FSA money to the following year, most companies will not change plan documents until 2014.


Fully fund employer-sponsored retirement plan contributions.

Unlike IRA's, the deadline for funding 401(k), 403(b) or 457 plans is Dec. 31. This year, the limit is $17,500 per employee. If you're older than 50, you can make an extra $5,500 as a "catch-up contribution." The dual benefit of maxing out retirement is clear: saving for a future goal and reducing current tax liabilities.


Consider converting Traditional IRA into a Roth IRA.

A conversion requires that you pay the tax due on your retirement assets now, instead of in the future. Whether a conversion makes sense for you depends on a number of factors, including if you can pay the tax due with non-retirement funds.

If you have money available to pay the tax due, some advantages of conversion are: paying the tax at a lower tax rate, if you think that your tax bracket will rise in the future; eliminating the tax on future growth of assets; reducing future Required Minimum Distributions (RMDs); and reducing the taxable amount of Social Security benefits.


Take Required Minimum Distributions.

Generally, once you turn 701/2, you must begin withdrawing a specific amount of money from your retirement assets (there are some exceptions). The reason is that Uncle Sam wants his due! Remember, money that you contributed to these accounts bypassed taxation. RMD's ensure that the government taxes those funds. The penalty for not taking your RMD is steep -- 50 percent on the shortfall. An estimated 255,000 taxpayers failed to take required minimum distributions totaling more than $348 million, according to tax data for 2006 and 2007, cited in a 2010 report by the Treasury Inspector General for Tax Administration.

One way to sidestep the taxation on your RMD is to make a Qualified Charitable Distribution (QCD), which allows you to gift up to $100,000 directly from your IRA to a charity without having to include the distribution in your taxable income. Not only does a QCD help avoid taxation, it also means that the extra income is not included in other tax formulas for Social Security and Medicare Part B premiums or for the Pease limitation on itemized deductions.

If you choose to make a QCD, remember that the money must go directly to the charity, not to a private foundation or a donor-advised fund, and you will not get a tax deduction for the charitable contribution.


Mail your checks for deductible purchases.

Procrastinator alert! If you're the type of person who waits until the last minute for everything, take note: To qualify for write-offs of charitable contributions and business expenses, your payments must be postmarked by midnight Dec. 31. The IRS says just writing "Dec. 31" on the check does not automatically qualify you for a deduction; and pledges aren't deductible until paid. Donations made with a credit card are deductible as of the date the account is charged.


Fully fund college savings 529 plans.

With outstanding student loan debt over $1 trillion, now's the time to get a leg up on your education savings with a 529 plan. Money saved in these programs grows tax-free and withdrawals used to pay for college sidestep taxes, too. You can invest up to $14,000 in 2013 without incurring a federal gift tax and many states offer state tax deductions for the contributions.

For details about New York's 529 plan, go to

Jill Schlesinger, a certified financial planner, is a CBS News business analyst. She welcomes emailed comments and questions.

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