How to be Tax Efficient with Your Investments
Tax efficient investing involves strategies to help reduce the impact of taxes. Let us help you make tax efficient investments in your portfolio. Contact us today.
Funding Your Retirement: Some IRA Choices to Consider
It’s extremely important that we all take our retirement into our own hands. The concept of not preparing and relying on a government-sponsored retirement is not the best plan. Financial woes combined with the fact that the U.S. population is continuing to age, means that there are fewer working-aged people remaining to contribute to our social security systems. On a positive note, strong retirement savings can not only help you, but it could potentially help your family and loved ones.
With today’s retirement challenges, more people are using retirement vehicles as a healthy way to help family members. Some experts agree that consistently funding your retirement plans is a healthy activity. Funding retirement accounts at younger ages many times leads to a better funded and more comfortable financial situation at your retirement.
o Traditional IRAs: A traditional IRA (Individual Retirement Account) is a way in which individuals can save for retirement and receive tax advantages. Traditional IRAs come in two varieties: deductible and nondeductible. The contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances (i.e. taxpayer’s income, tax-filing status and other factors) and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until they are distributed.
o Roth IRA: Unlike traditional IRAs which for some taxpayers can be tax deducted, you cannot deduct contributions to a Roth IRA.
o Spousal IRA: If your spouse doesn’t work, they can still have a spousal traditional or Roth IRA. This allows non-wage-earning spouses to contribute to their own traditional or Roth IRA, provided the other spouse is working and the couple files a joint federal income tax return.
o Custodial Roth IRA: Many children work before they reach age 18. The income they earn makes them eligible to contribute to a Roth IRA, which can be an extremely smart move for teenagers. If you’re the parent of a child who has earned income, a Custodial IRA can be a great way to teach the value of saving and investing.
o “Back-door” Roth IRA: A Backdoor Roth IRA is a strategy for some higher income earners to participate in Roth IRAs. It is a way for higher income earners to put money into a traditional IRA and then roll that into a Roth IRA, getting all the benefits. If you choose to attempt a backdoor Roth IRA conversion, please consult a knowledgeable tax planner prior to doing so because the rules for Roth conversions can be complicated.
If you have an interest in further discussing funding your retirement plans, please call us for a complimentary consultation. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. As with all tax sensitive decisions, you should always consult with your financial advisor and tax professional to help avoid tax ramifications.
For complete rules on IRA’s (including who qualifies), please visit http://www.irs.gov Publication 590a or consult with a qualified professional.
Please contact our office at (908) 379-2706 if you are interested in our full report, Funding Your Retirement: Some IRA Choices to Consider you would like to come in for a complimentary, no obligation financial check-up.
Westfield Financial Planning is not associated with The Academy of Preferred Financial Advisors, Inc. This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax or financial professional. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. Traditional IRA account owners should consider the tax ramifications, age and income restrictions regarding executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. IRA’s and ROTH conversions require understanding of specific rules, for complete rules on IRA’s (including who qualifies), please visit www.IRS.GOV Publication 590a or consult with a qualified professional. Source: www.irs.gov. Contents Provided by The Academy of Preferred Financial Advisors, Inc.; Reviewed by Keebler & Associates, Inc @ 2019
Helpful Information for Filing 2018 Income Taxes
Tax planning should always be a key focus when reviewing your personal financial situation. One of our goals as financial professionals is to point out as many tax savings opportunities and strategies as possible for our clients.
Tax Law Updates: For 2018, the form 1040 has been completely redesigned. Form 1040, which many taxpayers can file by itself, is supplemented with new Schedules 1 through 6. These additional schedules will be used as needed to complete more complex tax returns. Forms 1040A and 1040EZ are no longer available.
Income Brackets: There are still seven federal income tax brackets for 2018. The lowest of the seven tax rates is 10%, while the top tax rate is now 37%. The income that falls into each is scheduled to be adjusted in 2019 for inflation.
Standard Deductions: Some deductions and exemptions allowed in previous years are now eliminated. In the past, those who used a standard deduction could also include a personal exemption if they were not a dependent. That personal exemption is no longer an option. Also, deductions for interest on home mortgages have been reduced and interest from home equity loans eliminated.
There are also changes to state and local tax deductions. Under the new law, a taxpayer’s state and local tax (SALT) deduction is limited to $10,000. This includes both state income and property taxes.
Retirement Accounts: If you haven’t already funded your retirement account for 2018, consider doing so by April 15, 2019. That’s the deadline for contributions to a traditional IRA (deductible or not) and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2019, you can wait until then to put 2018 contributions into those accounts. To start tax-advantaged growth potential as quickly as possible, however, try not to delay in making contributions. If eligible, a deductible contribution will help you lower your tax bill for 2018 and your contributions can grow tax-deferred.
Filing your 2018 taxes will include many changes from previous years. The new tax rates and many of the changes that were approved are set to expire after 2025. An essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum. Managing wealth involves careful planning and keeping updated and informed of any changes that affect investors. When filing your 2019 taxes, the rules and laws currently in place do not vary too much from your 2018 taxes.
This report reviews some of the broader tax law changes along with a wide range of tax reduction strategies. As you read this post, please take note of each tax strategy that you think could be beneficial to you. Not all ideas are appropriate for all taxpayers. We always recommend that you address any tax strategy with your tax professional to consider how one tax strategy may affect another and calculate the income tax consequences (both state and federal). Remember, tax strategies and ideas that have worked in the recent past might not even be available under today’s new tax laws. Always attempt to understand all the details before making any decisions—it is always easier to avoid a problem than it is to solve one.
Our full report, including overlooked tax items and deductions and seven helpful tax time strategies, is available by contacting our offices at: 908-379-2706. We will be happy to forward you our complete report.