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5 Tax Strategies You Need to Take Advantage of Right Now

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By    |   Wednesday, 14 November 2018 03:26 PM

Saving and investing for retirement require a good amount of planning, but considering tax implications in those non-working years is equally important to the equation.

The tax bill passed by Congress and signed by President Donald Trump last December provides opportunities to reduce taxes related to retirement funds.

The adjusted tax brackets that came out of the Tax Cuts and Jobs Act of 2017 mean you can withdraw funds out of your tax-deferred accounts, such as a traditional IRA, at a much cheaper rate than in the past.

If you’re married filing jointly and would have fallen in the 25 percent tax bracket in the past, it may be 22 percent now. Those formerly in the 28 percent bracket may now be in the 24 percent bracket.

That may sound like a small change at first glance, but when you are applying it to tens of thousands or hundreds of thousands of dollars, it adds up quickly and means a lot in your retirement.

Here’s the catch. The window of opportunity for taking advantages of these tax changes may be limited; the new tax code rules end after 2025, unless a future Congress decides to extend them.

So what are some good, timely options to take advantage of?

  1. One is to move some of those tax-deferred dollars to a Roth IRA, which can significantly reduce your taxes over the long haul. When the tax changes expire – and assuming tax rates rise – a higher bracket could await you down the road for withdrawals from your tax-deferred accounts. As for now, with a lower tax rate, you would pay less for a Roth conversion than you would have paid prior to the new tax law.
  2. The Roth IRA is also worth thinking about when it comes to your children and any other heirs. It will allow your beneficiaries to inherit the Roth IRA tax-free. Leaving a traditional IRA behind to the kids means they would pay taxes on it at their own tax rate when withdrawing money from the account.
  3. Charitable giving can also be a win-win in that you’re doing good for humanity and helping yourself tax-wise. Under the new tax law, unfortunately many people will no longer itemize their deductions, causing them to lose the tax benefits of their donations. However, there are strategies through lumping multiple years of gifts into one year or utilizing strategies like a Donor Advised Fund. For those who still do itemize, they may benefit from a higher limit on deductions for cash gifts.
  4. Retirees also have another tax advantage with the qualified charitable contribution (QCD). Those 70½ or older who own traditional IRAs can directly transfer up to $100,000 from their IRAs to a qualified charity while satisfying the RMD at the same time. This will allow them to satisfy their RMD and yet not be taxed on the charitable distribution as if it were income.
  5. Another important aspect of making adjustments due to tax law concerns your Social Security benefits and how much tax you’ll pay on them when you claim them, as well as how much you’ll pay for your Medicare premiums. Some people think there is no tax on Social Security; not true. For higher-income beneficiaries, up to 85 percent of Social Security benefits may be taxable income.

In the long run, after working so hard all your life, it’s not all about how much money you make but also about how much you keep. Taxes can have a huge impact on retirement, and making good choices in the wake of the new tax law can benefit you greatly.

David Brooks Sr. is an Investment Adviser Representative (IAR) and the founder-president of Retire SMART. He has invested 20 years in the industry, has passed the Series 63, 65 and 66 securities exams and holds life and health insurance licenses in Iowa, Nebraska and South Carolina. Brooks has earned the Certified Income SpecialistⓇ (CISⓇ) and Certified Healthcare Reform Specialist (CHRSⓇ) designations. He has been published and quoted in The Wall Street Journal and Forbes and hosts a weekly radio program, Retire SMART with David Brooks, on Omaha’s 1420 AM/FM 94.5 The Answer.

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The window of opportunity for taking advantages of these tax changes may be limited; the new tax code rules end after 2025, unless a future Congress decides to extend them.
tax, strategies, advantage
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2018-26-14
Wednesday, 14 November 2018 03:26 PM
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