Broker Check

8 Easy Wins

| January 18, 2021

Disclosure and Possible Warning:

At the time of this writing these things were potentially as described. Financial facts change over time. e.g. interest rates. Financial situations change over time. Tax rules and laws definitely change over time. Consult appropriate professionals.

1. Roth IRA has potential tax savings

A properly run Roth IRA is a tax advantage because anything that happens inside the Roth IRA generates no income or capital gains taxes. e.g. Open one up ideally by age 54. You have to wait until age 59-1/2 to take money out with no penalty and no taxes. And the Roth IRA has to have been initially opened for 5 years. But tax-free income and / or growth from what you put into your Roth IRA is attractive.

2. Employer Match e.g. 401(k), TSP, 403(b) and others

If you can possibly arrange your financial affairs to take advantage, do so! Yesterday! Employer makes additional contribution into your plan. Each employer might have their own vesting rules. But once vested, it is you retirement money just like the money you contributed yourself. Sweet!

3. Do you have bonds in a taxable account. And do you have consumer or credit card debt?

If yes to both, under the current low interest rate environment, do the math as follows. use the bonds in your taxable account to pay down debt. Your net improves when you were paying a higher interest rate than you were receiving.

4. "Lazy Money" in a savings (or checking) account at a local bank?

Check interest for on-line savings. It might be worth the hassle of moving some of your savings.

5. Do you need more itemized deductions to get tax break for your charitable deduction?

Consider bunching 2-3 years worth of donations into one year. If you're not yet clear where you want to donate, put the money into a donor-advised fund until you decide.

6. Age 70 or older and want to donate to charity?

Consider a qualified charitable distribution directly from your IRA to charity. Counts toward RMD. You'll have less taxable income. Maybe lower Medicare premiums!

7. Pay zero Federal Income taxes? Yes if ... 

Standard deduction for single is taxable income of $12,550 for 2021. Married $25,200. If you will have no taxable income at all (i.e. / e.g. only tax-free income) consider finding enough taxable income to at least cover your standard deduction(s.) 

8. Zero capital gains taxes possible?

For single, $52,950 total taxable income, long term capital gains would be taxed at 0%. Married threshold is $105,900. Assuming standard deduction for both. 

Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor.  Neither Cetera Advisors LLC nor any of its representatives may give legal or tax advice.