4. The saver’s credit.
Retirement savers whose adjusted gross income is less than $30,750 for individuals and $61,500 for couples in 2016 could qualify for the saver’s credit. This tax credit is worth between 10 and 50 percent of the amount you contribute to a 401(k), IRA or Roth account up to $2,000 for individuals and $4,000 for couples.
5. Trustee-to-trustee transfers.
If you decide to roll over your 401(k) to an IRA or a new 401(k) when you change jobs, take care to transfer your balance directly from one account to another via a trustee-to-trustee transfer. If a check is cut to you, 20 percent of your savings will be withheld for income tax. You only get 60 days to put the distribution, including the withheld 20 percent, in a new retirement account. If you don’t meet the deadline you will owe income tax and potentially an early-withdrawal penalty on any amount that doesn’t make it into another retirement account. A trustee-to-trustee transfer allows you to avoid the tax withholding and the potential to trigger taxes and fees. “You want to do a trustee-to-trustee transfer and have the check going to the new custodian directly, so that way you can avoid that withholding,” says Mary Erl, a certified financial planner for Nest Builder Financial Advisors in Gurnee, Illinois.
6. Tax-free IRA charitable contributions.
Withdrawals from traditional IRAs are required after age 70 1/2, and income tax is typically due on each distribution. However, retirees who are 70 1/2 or older can avoid the tax and fulfill their withdrawal requirement by directly transferring amounts of up to $100,000 from their IRA to a qualified charity.
7. Holding tax-preferred investments outside retirement accounts.
Some types of investments receive preferential tax treatment. For example, long-term capital gains are taxed at a lower rate than short-term gains and ordinary income. If you put investments that generate long-term capital gains in a traditional 401(k) or IRA, you won’t have to pay tax on it while it’s in the account, but you will owe ordinary income tax on the investment gains when you withdraw them from the account. “You pay regular income tax on the gains, not capital gains tax on the gains,” Chinn says.