5 Tax Savings Strategies You May Have Missed
We already know that making contributions to tax deferred retirement accounts (i.e. deductible IRAs, SEPs, SIMPLEs and 401(k) plans) is the most obvious way to reduce your current year taxes, but with a little planning, you could develop a strategy to avoid paying future taxes as well.
Take a look at these five tax advantage savings ideas and discover how easy it can be to hold on to more of your money.
1. Tax exempt municipal bonds
The interest that accumulates on tax exempt municipal bonds is exempt from federal taxes and, in some cases, state taxes. While the IRS requires you to report this income on your tax return, the agency is only collecting the data for tracking purposes. There are a few exceptions though, so speak with your financial advisor to find out if this strategy will work for you.
2. Cash-value life insurance policies
One strategy that reinforces the claim that a little foresight goes a long way is the option to utilize the perks of a cash-value life insurance option. Doing so can provide you with the assurance of knowing your loved ones will be provided for in your absence while helping you secure an additional source of tax-free funds. This approach, which is also known as permanent life insurance, lets policy holders use their cash value as a tax-sheltered investment while providing them with the means to pay policy premiums later in life. Then, when you pass away, your policy’s death benefit proceeds will transition to your beneficiary tax free.
3. Roth IRAs
Those who are over the age of 59 ½ and who have had active Roth IRAs over the last five years are welcome to withdraw their earnings without the worry of paying pesky income taxes. Do you have a traditional IRA but would like to make the switch to a Roth IRA? This article will help outline the benefits and drawbacks of a conversion.
4. Health Savings Accounts
If you are looking for an effective way to hold on to your money, look no further than a Health Savings Account. Your HSA works kind of works like a deductible Roth IRA – one that allows you to use the funds you invest into the account exclusively for medical expenses. This article provides you with several valuable HSA perks, including triple tax benefits and rapid wealth accumulation.
5. Gift your IRA’s minimum distribution
If you’re at least 70-½ years of age, you can take tax-free distributions from your traditional or Roth IRA and donate up to $100,000 of those funds to a qualified charity. While other statutory requirements apply, this is a great opportunity for you to allocate your retirement funds for good a good cause. You can learn more about making a wise charitable contribution by listening to episode 11 and episode 13 of our podcast, unsuitable on Rea Radio.
Opportunities to keep more money in your pocket do exist, but you may need a financial advisor to help you unearth the savings. Check out Unsuitable on Rea Radio today and subscribe to the podcast on iTunes or SoundCloud to tap into expert financial advice and business insight when it’s convenient for you.
By Paul McEwan, CPA, MTax, AIFA (New Philadelphia office)