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Articles tagged with: tax planning

Why Health Savings Accounts are Appealing for High-Income Earners

When Used Correctly, HSAs Can Be the Ultimate Tax Savings Strategy

27 January 2021

Why Health Savings Accounts are Appealing for High-Income Earners

One of the keys to wealth building is protecting as much of your income as possible, making it crucial for high-income earners to develop a smart tax savings strategy. Health Savings Accounts (HSAs) are a great tool to help you accomplish this goal, yet they are often overlooked or misunderstood. When you do take advantage of an HSA – and you use it correctly – it provides an easy annual income tax deduction, but it can also create dedicated, tax-free savings for your healthcare needs in retirement.

Think of your retirement savings (IRAs and 401(k) as going to pay for other retirement expenses such as food, shelter, and clothes, and you can see that you need to jump-start saving in your HSA for your health care costs (including Medicare premiums) in retirement.  Moreover, an HSA is a savings account with a unique triple tax benefit. All contributions are tax-free, their growth within the account is tax-free, and qualified withdrawals (that is, ones that are used to cover qualified medical expenses) are tax-free, too.

Though this may sound promising, one-size-fits-all investment strategies don’t exist. Would an HSA make good financial sense for you? Read on to find out.

Six Tax-Efficient Investing Strategies

Present and Future Tax Liabilities Should Be Considered in Any Investment Decision

07 December 2020

Six Tax-Efficient Investing Strategies

There is so much to consider when making investment decisions, especially when you’re working toward meeting specific short- and long-term financial goals. This is certainly true of the tax implications of your investment strategy, as taxes can reduce your investment returns from year to year and jeopardize your ability to achieve your goals. This is especially true if you fall into a higher federal income tax bracket, making it even more important to consider the impact of taxes when making any changes to your investments. While you should always consult with a tax professional regarding your unique investment and tax scenarios, the following six tax-efficient investing strategies may be beneficial to your finances.

Four Times You Should Consider a Roth Conversion

Proper Timing Can Help You Maximize the Benefits of Converting Your Traditional IRA

14 September 2020

Four Times You Should Consider a Roth Conversion

A traditional IRA is a fantastic retirement savings tool because you can minimize your current tax burden and pay taxes on your contributions later. There are some instances, though, when you may want to take care of what you owe the government now so that you can avoid subsequent taxes down the road. To accomplish this goal, you’ll want to convert some of your traditional IRA balance to a Roth as Roth IRA distributions in the future including all the gains will be income tax-free.

When might a Roth conversion make sense? Although you should always consider your unique financial planning needs, there are four scenarios in which it makes sense to consider a Roth conversion.

Do You Know Your Financial Independence Day?

25 June 2020

Do You Know Your Financial Independence Day?

Independence Day is one of America’s favorite summer holidays. What is one of your favorite traditions on Independence Day: fireworks, hotdogs, parades? In this blog, I want to talk about another kind of Independence Day, your Financial Independence Day.

If money and time were not an issue, what kind of activities would you be doing over the next twelve months? The day when work becomes optional—when you can choose to stop working and start doing those activities that you enjoy while maintaining your current standard of living—is the day you’ve reached your financial independence day. This day is the end result of a process of determining your retirement income goals, the actions, and the decisions necessary to achieve those goals. Retirement planning is, in essence, preparation for life after paid work ends, not just financially, but in terms of lifestyle choices, such as how to spend time in retirement, where to live, when to completely quit working.

A Plan for Every Stage of Life

People often deny themselves their dreams because they don’t understand the resources needed. This is why it’s important that I get their list of dreams during a discovery meeting in order to explore options and tell them what’s realistic. If a goal is unrealistic based on current net worth, income, and expenses, I can make suggestions for changes to get them to a better place. I can run some scenarios to show if they are spending too much now to retire in their target year, and I can offer recommendations. Financial independence isn’t necessarily just about retirement; it could involve the pursuit of a new career.

Understanding the ‘Rich Person Roth’

08 June 2020

Understanding the ‘Rich Person Roth’

Recent world events have made it clearer than ever that it’s imperative to have a long-term financial strategy that allows you to weather volatile economic times. The Roth IRA is a popular tax-minimizing strategy, as it allows for tax-free growth and withdrawals in retirement, and many people make it part of their long-term financial plan. Unfortunately, high-income earners are either limited or ineligible when it comes to Roth contributions. At the moment, that means single individuals with incomes greater than $139,000 and couples with incomes greater than $206,000 in the year 2020 can’t take advantage of Roth IRAs the way those under these thresholds can.

Fortunately, there are a few ways around this. A Backdoor Roth lets you convert a traditional IRA to a Roth – even if your income precludes you from contributing directly to a Roth – through what amounts to some intricate paperwork. We help clients do this carefully and make sure that they report them properly on the tax returns.  The option I’ll discuss below, however, is a different type of tax-advantaged investment altogether. It’s called the Rich Person Roth and, though it’s not for everyone, it can be incredibly valuable for some high earners.

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