5 Essential Tax and Retirement Planning Tips

By Ginger Weber | September 04, 2016

Regardless whether we just got through the last tax season - or we are gearing up for the next - it may be the perfect time for you to take stock of your financial plan. Evaluating where you're at and comparing that to where you want to go will help you create a plan to meet your goals or reassess your current plan.

Ginger Weber is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt County These five tax and retirement planning tips will help keep your financial strategies on track.

1. 401k Advisors Say, "Don't Ignore Your Retirement Accounts!"

Are you taking full advantage of your 401k? This common retirement account offers a number of benefits, but many people don't milk these plans for all they're (potentially) worth.

First, the basics; if you're under age 50, you can contribute $17,500 per year into your 401k. If you're 50 or older, you can play "catch up" and add another $5,500 to your allowable contributions. These extra savings can make a big difference over time. 

Does your employer offer matching contributions? Many will match their employees' contributions up to a certain percentage; find out if your employer offers a match and, if they do, leverage the situation by contributing the max! After all, it's almost like getting free money.

2. Ask a Retirement Planning Advisor: How's that Individual Retirement Account Doing?

Take stock of your Individual Retirement Account (IRA) or Roth IRA. Though you can't put quite as much away each year -- IRAs are limited to $5,500 for those under age 50 and $6,500 for those age 50 and up -- but you'll save on taxes. 

Speaking of taxes, you have until tax filing day (plus extensions you may be granted) to contribute to your IRAs for the year. Don't procrastinate; try to hit your contribution goals by year's end so it won't remain a lingering detail that may get overlooked. 

3. Financial Strategies: Minimize that Tax Bill

This may seem like a no-brainer, but keep in mind that you must do your tax planning during the current tax year. Keeping track of when local, state and federal tax payments are due will help you plan for 2015 and avoid any unpleasant penalties.

Once you're clear about due dates, consider minimizing your tax burden through the use of tax loss harvesting. This financial strategy can help you reduce your taxes while diversifying your portfolio. Here's how it works.

Imagine that investment "X" has done well this year, providing you with a positive rate of return. Investment "Y," however, hasn't done so well and you've taken a loss. If both of these investments are held in taxable accounts, you may be able to:

  • Sell your losing investments
  • Harvest your losses
  • Apply those losses against your gains

The result? Smaller gains and a smaller taxable base.   This is a simplified example to illustrate how it could work.  We would advise anyone interested in creating a lost -harvest strategy to consult with an appropriate tax professional.

4. Add Gifting to Your Comprehensive Financial Plan

Ginger Weber is a CFP Certified Financial Planner and Financial Advisor with Premier Financial Group in Eureka Humboldt County

Gifting can also reduce your tax burden. Individuals are allowed to gift up to $14,000 in charitable contributions per year, while couples can give up to $28,000 combined. Just be sure to make your contributions before the last day of calendar year. And as always, if you have specific questions about contribution limits or time lines, be sure to consult a tax professional.

5. Ask Your Wealth Advisor About 529 Plans

Another tax strategy that may offer benefits is the 529 educational savings plan. Some states allow you to offset your state income taxes by taking a deduction against contributions to a 529 plan. These plans can be used to pay eligible education-related expenses for you, your children, your grandchildren or other dependents. 

As with all matters tax and retirement-related, planning is key. Use your retirement planning advisor and wealth advisor as resources to keep your finances on track.

Posted in Retirement Planning