Happy New Year to you! I thought it would be timely to reach out with some helpful tips that could potentially decrease your taxable liability as well as bolster your retirement savings. Please consider the below suggestions and implement any you find relevant to your financial household prior to year-end. Please note, I am not a CPA and can't provide tax advice, but I can provide ideas to consider and bring forth to your tax advisor (November is a good month to meet with your tax advisor). If you have any questions or would like to further discuss any of these strategies with me, I ask that you reach out sooner than later to ensure that I can accommodate your needs in a timely manner.
1) 401K (Job)
- Verify that your paycheck withholdings are on track to maximize your allowed contribution of $19.5k (plus additional $6.5k if over 50)
- Or if not maxing out, at least check to see that you deposited enough to get all employer matching (if any)
2) 401K (Solo), IRA, Roth, SEP, Contributions
- You have until April to deposit your contribution, but your 401K / IRA/ Roth account should be opened by Dec 31st. Remember there is an income phaseout above which you won't qualify to open an IRA or Roth, so check with me if you'd like to consider one.
3) Roth Conversions
- Unlike Contributions, a Roth conversion must be done by Dec 31st to be counted in the current year, and it can no longer be reversed afterwards. As such, calculate tax brackets carefully in advance. Additionally, there is a possibility that new tax laws might eliminate the Roth conversion option for some in future years, so if you are considering any, now is the time to do it, depending on your tax bracket.
4) Backdoor Roth IRA
- A Backdoor Roth IRA may involve a slight audit risk, but if you are looking to do one for 2021, please ensure that both a Roth and a regular IRA are opened by Dec 31st and all past IRA money is transferred to a 401K or converted to a Roth. This mainly applies to those who have maxed out their 401Ks / 403b / etc. and still want to put more away for retirement.
5) RMDS (Required Minimum Distributions)
- I have already done all 2021 RMDs for those accounts with owners over 70.5 / 72 yrs of age or with beneficiary accounts which I am managing. PLEASE REMEMBER to also take RMDs for other accounts you have away from Avantax which I am not managing, otherwise there is a 50% penalty for not withdrawing on time!
- One alternative to collecting your RMD if you aren’t in need of the funds is a qualified charitable Distrution(QCD) A nontaxable distribution from an IRA (other than an ongoingSEP or SIMPLE IRA) that is owned by an individual who is age 70½ or over.
- The QCD offers a maximum annual exclusion of $100k and must be paid directly by the trustee of the IRA to an organization elibile to receive tax-deductible. Please let me know if this peaks your interest, we can talk in more detail.
6) 529 Plans
- If your state has a tax deduction for 529 plans (not all states do), then be sure to contribute the annual limit to your accounts before Dec 31st. (Do not exceed the annual gift amount of $15k per child, if you are contributing more, speak to me.)
7) FSAs (Flexible Spending Accounts)
- If you have an FSA at work, you should look into using any leftover funds before Dec 31st. Some limited FSA funds can be rolled over to next year, but mostly it is use-it-or-lose-it, so please contact me to discuss if you have an FSA.
8) HSAs (Health Savings Account)
- If you have a high deductible health plan and haven't opened an HSA for this year, contact me to discuss. HSA funds can be rolled over each year, unlike FSAs, so you do NOT have to use the funds if you have no expenses, but still be sure to contribute – it's a huge tax benefit!
10) Taxes to IRS
- If you owe any Estimated Taxes, be sure to send in your 4th quarter tax by January 18, 2022.
- Submit sufficient taxes to avoid penalties (especially if you had any unusual events like Roth Conversions, etc.)
- Reminder that for most businesses, March 15th is the deadline to file taxes for LLCs, S Corps, C Corps, and Partnerships (not April 15th!)