Market Beat: Tax changes for 2012
TRUCKEE, Calif. andamp;#8212; The New Year will bring about a few changes in tax law that will affect savers and investors. For one, the IRS has increased the amount that youandamp;#8217;ll be able to contribute to your qualified retirement plan. If you participate in a 401(k), 403(b) or 457 plan, the contribution limit will increase by $500 to $17,000, if youandamp;#8217;re over age 50, the catch-up contribution of $5,500 does not change. Contributions to a qualified retirement up to the limit are tax deductible, so the more you contribute, the lower your tax bill will be.If you contribute to an IRA plan, the income limits have been raised by $2,000 for tax year 2012. If your adjusted gross income, AGI, is under $58,000 for single filers or $92,000 for married couples, youandamp;#8217;ll be able to deduct your IRA contribution dollar for dollar up to the limit of $5,000 or $6,000 if youandamp;#8217;re over age 50.The Roth IRA will have an income limit raise and some eligibility changes as well. A Roth IRA allows for tax free withdrawals after age 59 1/2. The 2012 income cap will increase by $3,000 for singles and $4,000 for married couples.The saverandamp;#8217;s credit limits have also been raised for 2012. The income limit has been raised by $500 for single filers and $1,000 for married couples. To be eligible for the savers credit your AGI must be below $28,750 if youandamp;#8217;re single and $57,500 if youandamp;#8217;re married andamp;#8212; for head of house holders the limit is $45,125. The savers credit will give you a tax credit of up to $1,000 if you contribute to a 401(k), IRA, Roth or other retirement plan. This is a tax credit that should be taken advantage of if you can qualify.If youandamp;#8217;re a small business owner, the contribution limits for profit sharing plans and SEPs will increase by $1,000 to $50,000. Defined benefit plans will have the benefit limits raised by $5,000 to $200,000 in 2012.There are also several changes for 2012 that are not investment related, the income tax bracket thresholds will rise for each filing status. The standard deduction and the personal and dependent exemption will increase slightly. Weandamp;#8217;ll see a raise in the earned income tax credit and the foreign earned income exclusion.Itandamp;#8217;s wise to plan ahead for the new tax year if youandamp;#8217;re a saver looking to maximize your deductions.Kenneth Roberts is a Truckee based Registered Investment Advisor. Ken has been in the securities business since 1992, has worked as a branch manager for a major Wall Street firm, and is currently a portfolio manager for Fusion Asset Management who specializes in target retirement and income producing portfolios. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.