Three end-of-the-year tax tips for retirees

FROM  http://www.marketwatch.com/

Yes, it's that time of year again—time to get ready to save on your taxes! You may be pretty good at making the most of your deductions, but if you are retired or close to retirement, there are a few tips that could help you save even more:

Tip 1: Maximize all of your retirement plan programs. Why? Unless you're adding to a Roth IRA, you automatically get a deduction for making a contribution to a retirement plan, no matter what tax bracket you're in. If you're under 50, this year you can contribute $18,000 to your 401(k). If you're over 50, you can add $6,000 for a total of $24,000. With IRAs, you can contribute $5,500 if you're under 50, and $6,500 (total) if you're over 50. And did you know that your non-working spouse can deposit money into an IRA, too? Contribute if you can. You won't find a better deal anywhere.

Tip 2: Consider tax-bracket management. Where are you within your tax bracket right now? Could you have additional income this year and still stay in your current bracket? If that's the case — and if you will be in a higher bracket in the future — you should use that gap. If you're holding a stock that's been good to you but it's hit the wall, think about selling and taking a capital gain. Or move money from your IRA to a Roth IRA, which will be tax-free in the future.

Speaking of the future, remember that you'll have required minimum distributions from your IRAs at age 70½ — and the percentage you have to withdraw gets larger every year. If you think these withdrawals may push you into a higher tax bracket, take another look at your allocations. Consider reducing IRA balances now while you're in a lower bracket by making prudent withdrawals before you're forced to do so.

Tip #3: Time and bunch deductions. If you're about to retire, timing is everything. Since your income will probably drop next year, deduct whatever you can this year. Of course, if you think your income will go up next year, save whatever expenses you can until then. Bunching deductible expenses (e.g. medical costs) into one year may also help, as you can reach a threshold that gives you deductions you wouldn't have received otherwise.

I hope these tips help you to save big this year. Have a great end-of-the-year tax saving season (and enjoy the holidays, too)!