Sometimes, little known rules can mean big money. Here are a few examples:
- A Roth IRA conversion is possible even after Required Minimum Distributions have started at age 70½. Just be sure to withdraw (not convert) the RMD for the year from your Traditional IRA before doing any Roth IRA conversions that year. A Roth IRA conversion is especially worth considering if you do not need all of your Traditional IRA funds to support your retirement expenses. Any funds converted into a Roth IRA will no longer have RMD requirements during your lifetime.
- Are you near the Social Security retirement age? Have you heard of strategies like “file and suspend” and “restricted application”? If you are married, you are entitled to a Social Security benefit based on (1) your own work record or (2) your spouse’s work record. It is possible to receive a spousal benefit while allowing your own work record benefit to grow until age 70. If any of this is news to you, do some research now!
- When a married couple holds community property in a community property state, 100% of the asset’s cost basis (not just one spouse’s 50% interest) gets reset at the asset’s fair market value at the death of the first spouse. This feature of the tax law can potentially save you big money on capital gains taxes. If this situation applies to you, consult a tax advisor about whether you should file an estate tax return (IRS Form 706) for the deceased spouse to document the new cost basis. You may need a valuation appraisal for real estate or closely held business interests. For publicly traded stocks or mutual funds, you can just use market trading prices.