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Year-end strategies to put into the retirement mix

Starting in 2015, new rules apply for withdrawing

Starting in 2015, new rules apply for withdrawing and rolling over money from an IRA. Next year, you can only roll over an account once every 365 days. Photo Credit: iStock

With just days to go before the end of the year, here are five potential moneymaking/money-saving retirement moves to consider.

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 over the age of 50, you can make an extra $5,500 as a catch-up contribution. Remember that a contribution into your employer-sponsored plan is an above-the-line deduction, which means it is taken before you calculate your adjusted gross income. I love above-the-line deductions because they are allowed in full — many other deductions are phased out for high earners.

CONSIDER CONVERTING A 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, the most important of which is whether 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, widely known as RMDs; and reducing the taxable amount of Social Security benefits. If you already converted your account this year, you may want to reexamine it. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

BE AWARE OF NEW IRA ROLLOVER RULES. Starting in 2015, new rules apply for withdrawing and rolling over money from an IRA. Next year, you can only roll over an account once every 365 days. (Note: The rule specifies "every 365 days," not once a calendar year.) The rule applies to IRA-to-IRA rollovers where the owner takes custody of the money. The rule does not apply to rollovers from employer plans to IRAs or to "trustee to trustee" transfers.

TAKE REQUIRED MINIMUM DISTRIBUTIONS. Generally, once you turn 70½, you must begin withdrawing a specific amount of money from your retirement assets. (There are some exceptions.) Remember, money that you have previously contributed to these accounts bypassed taxation — RMDs ensure that the government taxes those funds. The penalty for not taking your RMD is steep — 50 percent on the shortfall!

A FEW NOTES ABOUT RMDs. Even if you have multiple individual retirement accounts, you don't have to take the RMD out of each individual account. You are allowed to take one RMD from any of your retirement accounts, based on your age and the total value of the accounts. Also, filing a joint return doesn't mean you can take the entire amount for both spouses from one spouse's account: RMDs are calculated for each individual. Finally, if you inherit an IRA, check before year's end to see if you need to take an RMD on behalf of the deceased.

CONSIDER A QUALIFIED CHARITABLE DISTRIBUTION. Since 2006, one way to sidestep the taxation on your RMD has been to make a qualified charitable distribution — known as a 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: You swap having to claim the income for making a charitable deduction. 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 what is known as the Pease limitation on itemized deductions.

As of this writing, lawmakers have not yet extended the QCD, and while experts believe that it will be extended, you should be careful. 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.

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

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