By Marc S Schliefer, CFP®️RICP®️
Wealth Advisor and CEO
It’s hard to believe that we’re at tax time. Every year clients say that “I wish I did this…” or “I wish I did that…” to reduce their tax bill. Last year was a little bit better, tax-wise, since the stock market wasn’t so good and did not produce as many gains as in 2021 for a lot of people. Frankly, I would rather have the better stock market and deal with the taxes than have a dropping stock market. Both situations are not good, but it’s a better problem when your portfolio is increasing.
Here are some things that you can do this year so next year is not too bad from a tax standpoint.
For 2023, there have been some increases in how much can be put away pre-tax and in Roth accounts. For 401K plans, you can contribute $22,500 per year if under the age of 50 and $30,000 if you’re over 50. This is nice because you’re contributing to your retirement pre-tax. This reduces your taxable income and helps by reducing the amount of taxes you owe. You can also do a Roth 401K if your company has that option. The Roth option is not pre-tax going in, but when you withdraw funds, the funds will be tax-free. For some people, it’s good to have a combination of pre-tax funds and Roth funds in their 401K plan.
In addition to the 401K plans there are IRA plans, where depending on your income, marital status, and if you or your spouse is covered under a retirement plan, your contribution may be tax deductible. You can contribute up to $6,500 for an IRA for this year if you are under the age of 50 and $7,500 if you are over 50. This is the maximum for the Roth and the regular IRA plans. If you’re single, and your income Is over $153,000 per year your ability to contribute to the Roth IRA will be reduced. There are no reductions based on income for Roth 401K plans. If you are married and your combined income is over $228,000 for 2023, your ability to contribute to a Roth IRA will go away.
Roth IRAs and 401Ks are nice because as long as you have had a Roth for at least 5 years, and you are over the age of 59 and a half, all your withdrawals from the Roth are income tax free. Another benefit is that you will not be required to take out required minimum distributions from any Roth except for inherited Roth IRA accounts. Inherited Roth IRA and 401K plans require distributions each year for the beneficiaries.
These are some of the more common deductions that people may take on their taxes. Please check with your tax professional to see if there are other strategies they would recommend to get the best outcome on your taxes. If you want to run any options by me or if you need a recommendation from a tax advisor, please feel free to email me at marcs@equityplanning.com and I would be happy to help you in any way possible.
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