It’s not too late to take advantage of a few ‘after year’ strategies to reduce your tax burden for 2021.
This short list is worth reviewing to see if you can keep a few dollars working for you and away from the Tax Man.
Health Savings Account by April 18th
Health Savings Accounts (HSA): if you have a high deductible medical insurance plan, check to see if it is a ‘qualifying’ plan that allows you to establish a HAS. Contributions are deductible, grow tax-deferred, and come out tax-free (like a Roth) when used for a qualified medical expense, of which there are thousands. The 2021 limit for an individual is $3,600, or $7,200 for a family. The deadline this year is April 18th to take this deduction.
Open or Contribute to an Individual Retirement Account (IRA)
IRA’s (Individual Retirement Account) are deductible for all individuals who are not covered by a retirement plan, and even for some in plans which are under certain compensation limits. Traditional IRA’s are deductible up to $6,000 ($7,000 for those over 50 years old). A couple may contribute up to $12,000 ($14,000 if both spouses are over 50 years old). The deadline for funding your 2021 IRA is April 18 this year even if you have to file an extension.
Open a Simplified Employee Pension Plan (SEP)
Simplified Employee Pension Plan (SEP): This is a wonderful tool for self-employed individuals, small businesses, and even individuals with a second job as an independent contractor. Contributions up to 20% of your net, after expense but before tax earnings, may be contributed to this retirement plan. Contributions grow tax-free but are taxed as ordinary income when withdrawn in retirement. A SEP may be funded as late as the day you file your taxes, including extensions.
*Special note. Research a ‘Backdoor Roth IRA’. This is a way of funding a non-deductible IRA, then converting it to Roth. There is talk of taking away this strategy, but as of now, it is still available. Roth’s grow tax-deferred, and distributions are tax-free. If you do one now, it cannot be taken away even if the law changes. Talk to your advisor to see if this fits your planning needs.
About The Charitable Payraise
The Charitable Payraise™ & The ROQS™ Method were created to help hard-working, long-serving W-2 employees ‘do well by doing good’, resulting in maximization of their retirement assets and increasing their after-tax retirement cash flow. www.charitablepayraise.com.