This is
G&G Associates Tax & Financial Consulting
e-Newsletter
Retirement & Education Savings
Tips to Lower Taxes in 2017
G&G Readers,
Now that the tax filing deadline has
passed for the 2016 tax year, this is a perfect time to start thinking about
some simple ways to boost retirement savings and at the same time lower overall
tax liability for 2017.
Start Thinking IRA: For 2017, the maximum IRA contribution is $5,500, or
$6,500 if you are over the age of fifty. Contributions can generally be made in
pre-tax, after-tax, or Roth. A pre-tax IRA, also known as a traditional
IRA, is one of the more popular ways to save for retirement that also offers
tax advantages. Contributions made to a traditional IRA may be fully or
partially deductible, depending on your circumstances, and, generally, amounts
in a traditional IRA (including earnings and gains) are not taxed until distributed,
which is not required until one reaches the age of 70 1/2.
An after-tax IRA, also known as a
non-deductible IRA, is a traditional IRA that contains nondeductible
contributions. Nondeductible contributions to traditional IRAs often occur when
one makes too much to make a deductible contribution, or is limited because of
employer 401(k) plan contributions. When one takes a distribution from an
after-tax IRA, the portion of the distribution coming from nondeductible
contributions is tax-free, although, any income and earnings generated from
that after-tax contribution would be subject to tax, and a 10% early
distribution penalty if the individual is under the age of 59 1/2.
A Roth IRA is an improved version of
the after-tax nondeductible IRA. Although one does not benefit from a tax
deduction for contributions, all of the qualified distributions, including
earnings, come out tax-free. To contribute to a Roth IRA, ones modified
adjusted gross income must fall below the annual limits for your filing status
(which is $196,000 if filing jointly for 2017). One can withdraw contributions
any time, but must be 59 1/2 years old and you must have had a Roth IRA open
for at least five tax years before one can withdraw income and gains without
tax or penalty.
Business Owners Rejoice: Owning a business in 2017 can have some significant
retirement tax benefits, if one is aware of them. The scope of the benefits is
somewhat dependent on whether the business has full-time employees other than
the owners. For example, a sole proprietor or a business entity with no
full-time employees, may be eligible to contribute up to $54,000 ($60,000 if
the participant is over the age of fifty), to a solo 401(k) plan in pre-tax,
after-tax or Roth. Whereas, if the business has non-owner full-time
employees, the business owner’s total contribution may be limited due to the
cost of offering maximum employer profit sharing contributions to all
employees. Nevertheless, business owners should consult with their tax
advisor to examine how establishing an employer retirement plan, such as a
401(k) plan, SEP or SIMPLE IRA for their business could potentially help their
retirement savings, as well as reduce their annual tax liability.
Get to Know the 529 Plan. A 529 Plan is an education savings plan operated by a state
or educational institution designed to help families set aside funds for future
college costs. It is named after Section 529 of the Internal Revenue Code.
Nearly every state now has at least one 529 plan available, but the plan
characteristics may differ by state. 529 plans are usually
categorized as either prepaid or savings plans. In general, the tax advantages
of establishing and funding a 529 plan is that earnings are not subject to
federal tax and generally not subject to state tax when used for the qualified
education expenses of the designated beneficiary, such as tuition, fees, books,
as well as room and board. Contributions to a 529 plan, however, are not
deductible. One may make a contribution of $14,000 a year or less to a 529 plan
qualifies for the annual federal gift tax exclusion. Under special rules unique
to 529 plans, one can gift a lump sum of up to $70,000 ($140,000 for joint
gifts) and avoid federal gift tax, provided one makes an election to spread the
gift evenly over five years Thus, establishing and funding a 529 plan may will
not offer you an immediate tax deduction, but it will allow you to help your
children afford college by having the contributions and earnings grow without
tax over time, thereby, potentially allowing one to spend their retirement
savings on other expenses.
HSA Triple Tax Benefit: IRC Section 223 allows individuals who are covered by a
compatible health plan, often referred to as a High Deductible Health Plan
(HDHP), to set aside funds on a tax-free basis up to the contribution
limit to pay for certain out-of-pocket medical expenses. Health Savings
Accounts have a triple tax benefit—funds go into the account tax-free, funds
grow tax-free and remain completely tax-free when used for eligible
medical expenses. The IRS imposes certain requirements in order to be
eligible to contribute to an HSA, such as one cannot be covered by
Medicare. The maximum 2017 contribution is $6750 for families, with a
$1000 catch-up for individuals over the age of fifty-five.
Planning and saving for retirement
does not have to be painful. Understanding the rules and employing a
consistent approach can help increase retirement savings while simultaneously
reducing ones tax liability. However, a few simple retirement planning moves
can help make the difference when April 17, 2018 rolls around.
One of the benefits of being a client with G&G Associates is that you'll get a free 30 min pre-tax preparation session to make sure you are gathering your documents appropriately before you submit your documents for tax preparation.
So, contact us today to file your return and/or schedule an appointment.
Visit our website for more information and free online webinar classes to help you make sure you are audit proofing your records, or contact us today to set your appointment if you need a “TAX” OR “FINANCIAL” one-on-one consultation.
Until the next time!
Tua (Thank You),
Asar Maa Ra Gray
Tax, Financial & Veteran Consultant
G&G Associates
757-271-6068 office
866-361-3872 toll free fax
www.gngassociates.net
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