Roth vs. Traditional IRA… Which is better?

With tax season around the corner many contemplate funding their IRA or Roth IRA accounts.  Sometimes you may wonder which is better for you.  We thought this article may help you as you debate the differences and which might be best for your situation.  Contribution limits for 2012 remained level at $5,000 with an additional $1,000 available for those age 50 or older.  It may be helpful to know that in 2013 these limits increased slightly to $5,500 (age 49 or younger) and $6,500 (age 50 or older).  Also remember that Traditional IRAs must be established by the tax-filing deadline (without extensions) for the tax year to which your qualifying contribution(s) may apply.

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Tax Increases in the New Year

 

The Heritage Foundation recently summarized a list of the 13 tax increases that started January 1, 2013.  Seven resulted from the deal that Congress and President Obama struck at the end of 2012 to help avoid the fiscal cliff, and the other six are tax increases from Obamacare that also began this year.  Here is the list summarized by Charles Dubay:

13 Tax Increases That Started January 1, 2013:

Tax increases the fiscal cliff deal allowed:

1)      Payroll tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”

2)      Top marginal tax rate: increase from 35 percent to 39.6 percent for taxable incomes over $450,000 ($400,000 for single filers).

3)      Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).

4)      Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).

5)      Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).

6)      Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.

7)      Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.

Obamacare tax increases that took effect:

8)      Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).

9)      Another payroll tax hike: 0.9 percent increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).

10)   Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.

11)   Reducing the income tax deduction for individuals’ medical expenses.

12)   Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy.

13)   Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives.