5 Tax Moves to Consider Before April 18th
Even though we are a few months into 2016, it is not too late to save on your 2015 taxes or increase the amount of tax-free or tax-deferred savings you are making. As you are compiling your tax information and meeting with your tax professional, please consider discussing how these strategies could help you.
For the most recent contribution limits, please check out IRS.gov.
1. Fund Your Health Savings Account (HSA)- If you are part of a high-deductible health plan and eligible for a Health Savings Account (HSA), you may contribute $3,350 for an individual and $6,650 for a family, with an additional $1-2K if you are 55-64 years old. Why consider maximizing contributions to your HSA each year? It is one of the only investments that is triple tax-free! Contributions made from payroll deduction are pre-tax, or you may make a tax-deductible lump sum contribution by April 18, 2016. The funds in your HSA grow tax-free and you pay no tax if the funds are used for qualified medical expenses. Plus there is no time limit for use so unused contributions can accumulate and be invested. This is a great way to create a tax-free medical account for large future medical needs or to pay for medical expenses in retirement.
2. Fund Your Roth IRA- You may contribute up to $5,500 in a Roth IRA for 2015. If you are over the age of 50 the amount is $6,500. Roth IRA contributions are not tax-deductible, but the earnings grow tax-free. Roth IRA contributions are subject to income limitations. To be eligible for a full contribution, your adjusted gross income (AGI) needs to be under $116,000 if you are single and $183,000 if you are filing jointly. After that, the ability to make a Roth IRA contribution is phased out.
3. Contribute to your Child’s Roth IRA– If your child has earned income from a summer job or internship, you may contribute 100% of earned income up to $5,500 into a Roth IRA. The benefit of doing this is that the child is in a lower tax bracket now than they will be later in life. Plus, they will have an extended period to grow the assets tax-free. For example, one $2,000 contribution to a Roth IRA invested for 40 years in a growth investment would be worth over $30,000. Another bonus is that Roth IRA accounts do not affect financial aid. Many firms allow you to open a Roth IRA for as low as $250-$500.
4. Contribute to a Traditional IRA– A traditional IRA may or may not be a tax deduction, depending upon your adjusted gross income or whether or not you or your spouse are active participants in a qualified retirement plan. Regardless of their tax deductibility, funds grow tax-deferred until your begin withdrawal of the funds in retirement. Contribution limits are 100% of earned income, or alimony up to $5,500 for 2015. If you are over the age of 50, the contribution amount is $6,500. Contributions for 2015 must be made by April 18, 2016.
5. Contribute to a SEP IRA if Self Employed– If you were self-employed last year, you may still set up and fund a SEP-IRA. You may contribute the lesser of 25% of compensation or $53,000 for 2015. Contributions to your SEP IRA are tax-deductible and grow tax-deferred. A SEP-IRA is easy to set up and has very minimal administrative costs compared to other retirement plans. The deadline to fund your SEP-IRA is the tax filing deadline plus extensions so you may fund your 2015 SEP-IRA as late as October, 15, 2016.
Depending on your unique personal financial situation, you may be eligible for one or a few of these tax planning strategies. With the tax deadline approaching on April 18th for most and April 19th if you live in Massachusetts or Maine, we recommend consulting your tax professional, who can advise you accordingly. Any one of these smart tax moves can truly make a difference when it comes to tax and retirement savings!
If you have questions about these tax savings strategies- or any other financial planning issues- please contact us at 781-862-7100 or [email protected]