Best Tax Planning Strategies to Achieve Maximum Savings

Starting in 2022, you will no longer be able to convert Traditional IRA contributions into a Roth IRA. Before, during tax planning sessions we would create strategies for higher income families to contribute into a Traditional IRA for the tax deduction then in a later year convert over into a ROTH IRA for tax free benefits upon distribution.

Tax Free IRA Rollover

If you have an employer 401k plan, you can rollover your funds into an eligible IRA plan once a year. As long as the funds are moved to a like retirement account a taxpayer does not have to include in gross income. If you have a pre- tax 401k, you must rollover to Traditional IRA and if you contribute to a after-tax 401k you must rollover into a ROTH IRA to avoid paying early withdrawal penalty taxes.

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Types of Individual Retirement Accounts (IRA)

An IRA is a retirement account set up exclusively to save for retirement. The most common IRA accounts are a Traditional IRA and ROTH IRAs.
Traditional IRA contributions can be deducted for tax purposes. Any earnings made within the account are taxes upon distribution. Since the purpose of the account is to save for retirement, if the funds are distributed prior to you reaching age 59 ½ then you will incur early withdrawal penalties. The law imposes an additional 10% tax on any early distributions included in income. By reaching age 72 you are required to start making annual minimum distributions.
ROTH IRA contributions are not tax deductible and generally distributions are tax free. After you have had your ROTH IRA open and funded for at least 5 years you may begin to withdraw with no additional early penalty. There are no required minimum distributions at a certain age.
A taxpayer can make contributions to traditional IRAs and Roth IRAs at any time during the year or by the due date for filing the return for that year, not including extensions, the maximum contribution is generally $6,000. For most taxpayers, this is April 15. Catch-up contributions for traditional and Roth IRAs are for taxpayers age 50 or older, the maximum contribution is $7,000.
For example, if you are 35 and decide to contribute into an IRA for 2021 tax season you have until April 15, 2022, to make a $6,000 contribution. Or if you are 50 years or older you can contribute $7,000 into an IRA.

Income Limitations for IRA Tax Deduction

If you are covered by a retirement plan at work, you have different income limitations than if you don’t have the benefit.

Single/ Head of Household

Adjusted Gross Income

Deduction Available

$66,000 or less

Full Deduction

$66,000 – $76,000

Partial Deduction

$76,000 or more

No Deduction

Married Filing Jointly

Adjusted Gross Income

Deduction Available

$105,000 or less

Full Deduction

$105,000 – $125,000

Partial Deduction

$125,000 or more

No Deduction

Married Filing Separately

Adjusted Gross Income

Deduction Available

Less than $10,000

Partial Deduction

$10,000 or more

No Deduction

Now if you are not covered by retirement plan at work:

Filing Status

Adjusted Gross Income

Deduction Available

Single/ Head of Household

Any amount

Full Deduction

Married Filing Jointly or Separately

if spouse is not covered by a pan at work

Any amount

Full Deduction

Married Filing Jointly

and spouse is covered by a plan at awork

$198,000 or less

$198,000 – $208,000

$208,000 or more

Full Deduction

Partial Deduction

No Deduction

Married Filing Separately

if spouse is covered by a plan at work

Less than $10,000

$10,000 or more

Partial Deduction

No Deduction

We create Tax plans and advise our tax clients based on their income and the tax guidelines. If your family needs assistance creating a tax strategy to implement during tax preparation to guarantee you the maximum savings, contact us to book your tax planning session now.

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