How to enable the text formatting of a message when replying or forwarding in Outlook 2013?

Symptoms

When replying to or forwarding an e-mail message, you are unable to format text or insert a picture in the message body.

Cause

Of the three message formats that Microsoft Outlook supports — plain text, Rich Text Format (RTF), and HTML — plain text does not support inserting a picture or formatting text, such as adding bold fonts, colored fonts, and bullets.

When you reply to or forward a message, Outlook preserves the format of the original message. Also, if you select the Read all standard mail in plain text option, Outlook formats your reply in plain text.

Outlook 2013 has a new feature which allows you to reply to a message directly from within the “Reading Pane” of the main Outlook window. This makes the replying process a bit more streamlined, especially for emails which only require a quick responds.

However, this “Quick Reply” method isn’t fully featured. Basically, only the options that are available on the “Home” tab when creating a new message are available to you. Nevertheless, when you need more feature, these are still easily available.

Pop Out

When you want to “break out” the Reading Pane when replying, you can press the “Pop Out” which is located above the Send button. This gives you access to all the features you’d normally have when creating a new message.

If you don’t like the feature to reply in the Reading Pane at all, you can change the behavior back to always reply in a new window via:
File-> Options-> Mail-> section: Replies and forwards: Open replies and forwards in a new window

While it might be tempting to directly press the Pop Out button when you are missing a feature, some are still only an “unexpected” click away.