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3 Last-Minute Tax Tips

A quick reallocation here and a receipt there can add up to a sizable refund ... even with a short clock left

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Last-Minute Tax Tips: Contribute to an IRA or HSA Plan

last-minute-tax-tips-iraWhether you have a longstanding IRA, recently rolled over your 401k into an IRA or have an HSA plan, this is a great place to start.

For tax year 2013, you can contribute $5,500 to an IRA or Roth IRA and $6,500 to either if you are age 50 or older. The Roth IRA, as a general rule, is a better long-term financial planning vehicle. But if you’re looking to take a dent out of your tax bill today, you’ll want to contribute to a traditional IRA, as the Roth offers no tax break in the year of the contribution.

How much can you save by making a contribution? It depends on your tax bracket, but let’s consider an example. If you’re filing as a married couple with a combined income between $72,501 and $146,400, you fall in the 25% marginal tax bracket. Contributing $5,500 will mean $1,375 in tax savings. Contributing a combined $11,000 will save you $2,750.

The same goes for Health Savings Account (HSA) contributions. If you buy your own health insurance and it is HSA-compatible, an HSA can be thought of as something like a “spillover” retirement account if you have already maxed out your IRA or 401k. And unlike IRAs — in which your ability to take a deduction can be phased out or eliminated if you already contribute to an employer 401k plan — HSA accounts have so such conditions.

In 2013, an individual policyholder can contribute a maximum of $3,250 to an HSA, and a family can contribute $6,450.

Though hardly a revolutionary idea, parking cash in an IRA or HSA is a last-minute tax tip that works.

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