Tax planning and retirement planning are two ways that you can have a more financially secure future.  It is important to understand both retirement and tax planning to ensure that you and your family are taken care of.

Retirement Plans

The 401(k) is the most basic, common retirement plan.  You can contribute up to $17,500 per year if you are less than 50 years old, or up to $23,000 per year if you are over 50 years old.  If you participate in this type of retirement plan then you will want to make sure that you are taking full advantage of your corporate matching program so that you are maxing out what your company will match because this is essentially free money.

Individual retirement accounts, or IRAs and Roth IRAs are different than the 401(k).  You can’t contribute as much money each year but your future withdrawals are tax free, unlike with the 401(k).  You can contribute up to $5,500 each year until the age of 50, then the amount increases to $6,500.

Tax planning

Tax planning should be done in the current tax year.  It is easy to lose track of the start and end of tax cycles.  Using a calendar can help you keep track of when local, state, and federal tax payments are due and help you avoid penalties.

Proper tax planning can help you use legal ways to lower your tax bill.  Tax loss harvesting is an essential tool for many investors because when properly used it can not only help save on taxes, but help you diversify your portfolio.

For example, if you have two investments and one performs very well but the other resulted in a loss, then you can harvest your losses and apply them to your gains as long as both investments are within taxable accounts.  This leaves you with a smaller amount of gains and a lower base for taxes.  This can be done with stock or real estate as long as you sell it to take your loss and offset your capital gains tax.

Another strategy of tax planning is gifting.  Charitable contributions can help reduce taxable income.  Individuals are allowed to gift up to $14,000 to any other individual each year.  If you are married than you and your spouse combined can gift a total of $28,000 per year.

Another tax planning strategy is the 529 educational savings contribution.  Some states allow you to take a deduction against state income taxes based on the amount of money contributed.  This plan can be for your children or grandchildren.

These tax planning and retirement planning tips can be completed before the end of the year to help minimize your taxes.  It is important to practice both retirement and tax planning to be successful in future years.

Call Marlandale LLC for assistance with your retirement and tax planning consultation.