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Taking action for your money: Why April 15th isn’t always the best deadline for tax planning

Posted at 5:57 PM, Nov 16, 2017
and last updated 2017-11-16 17:57:30-05

April 15 is a date that most people remember because of taxes but there are several tax saving plans that have deadlines of December 31.

Roth Conversions must be made by December 31 of the current year to keep them in the current year's tax window.

What is a Roth Conversion you ask? It is when you convert a traditional IRA to a Roth IRA and move the tax status from Tax Deferred to Tax Free.

But to do that you must pay the taxes on the amount you convert by April 15 of the following year.

Why might you want to do this? If you are retired or if you have a very low income year, there is a chance that you could convert $20,000 of an IRA to a Tax Free Roth IRA and pay no taxes to do it. If you were able to do that for eight years that is $160,000 you could possibly get converted from a Traditional IRA to a tax free Roth IRA without paying taxes on it.

You could still possibly do this even if you are drawing social security. This can also help lower the eventual RMD’s (required minimum distributions) that you are forced to take when you turn 70 and a half years old.

But, it must be done by December 31. And how do you figure out if you should do a Roth Conversion? You work with a professional financial adviser who does tax planning and has the tools to work interactively with you to help make the decision.

Also if you determine through tax planning that you should fully fund your 401K to either $18,000 or 24,000, then that too must be done by December 31, you don’t have until April 15 like you do your IRA. So get busy tax planning now, before the end of the year hits!