Unless Congress acts, your tax bill will be higher next year. Top income tax rates will go from 35% to 39.6%. On top of that, a piece of the health-care reform law goes into effect: For higher-income taxpayers, the provision means an additional 3.8% Medicare tax on investment income that most people are not aware of yet. That brings the highest marginal tax rate to about 43.4% before state and local taxes, if they apply to you. So what can you do?

One solution available to most of us is our retirement accounts. Many employees are only funding their 401k accounts to the company match. If you increase that by just 3%, you will lower your tax bill but make little or no difference in your spendable income.

Another solution is to take advantage of the tax rates we are under now and look into converting part of your Traditional IRA to a Roth IRA. You will pay tax on the amount that you convert but it will be at today’s lower tax rate vs. next years’ increased rates. Converting part of your Traditional IRA to a Roth may also help with tax management in the future. When calculating your Required Minimum Distribution, the Roth balances are not included.

A comprehensive review of your retirement accounts, cash flow, and taxes should be done annually. Contact your Certified Financial Planner Professional® today.

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