Tax Efficient Strategies

When individuals retire, they will likely generate less taxable income and thus find themselves in a lower tax bracket. High earners are typically strongly encouraged to max out their tax-deferred accounts to minimize their current tax burden. Also, by receiving an immediate tax advantage, investors can put more money into their accounts.

Individual Tax Strategies

• Traditional IRA’s - Uses before tax dollars, so there is a deduction available for contributions. The account grows tax free until distribution
• Roth IRA’s- Funded with after tax dollars, there is no current year deduction. The growth and distribution are tax-free.
• SEP IRA’s - a retirement savings plan established by employers for the benefit of their employees and themselves. It can also be established by self-employed individuals. Employers may make tax-deductible contributions on behalf of eligible employees to their SEP IRAs. They are often used by small businesses and sole proprietorships. The maximum contributions are subject to IRS limits but are greater than traditional IRA’s. They are funded with before tax dollars by the employer so there is a tax deduction available to the employer.
• Solo 401(K) - A Solo 401(k) can only be used by business owners who have no employees eligible to participate in the plan. You will set up your plan eligibility requirements in the Solo 401(k) plan documents used to establish your plan legally. The IRS has set limits on when employees must be included in your plan, so be sure to follow the rules. If an employee meets your plan eligibility, then you must include them and begin following certain testing and discrimination rules, which may require you to hire a benefits consulting or administration firm to help you. The one exception to the no-employee rule for a Solo 401(k) is for a spouse who earns income from your business. In 2021, your spouse can contribute up to $19,500 as an employee (plus the catch-up provision if 50 or older), and you can make the same percentage of employer contribution that you made for yourself (up to 25% of compensation). In 2022, this contribution limit is increased to $20,500 as an employee (plus the catch-up provision). This exception effectively allows you to double the amount you can contribute as a family.

Tax Qualified Plans / Personal 

•  IRA’s, Roth IRA’s
• Roth Conversions – Taxes due on conversion
• Inherited IRA’s – Pass on Account to Heirs

Gifting

• The annual Gift Tax exclusion per recipient is $16,000, and the recipient does not have to declare that Gift as Income (unless it later earns interest). Gifts between spouses are unlimited and generally don’t trigger a gift tax return. Gifts to nonprofits are charitable donations, not gifts.

Tax Loss Harvesting

• Investments held in a non-retirement account that have a negative value if sold at a loss, create losses to offset gains on other investments or ordinary income.

Monetized Installment Sales

• Is a special type of installment sale whereby a seller of appreciated assets attempts to defer U.S. Federal income tax liability over a period of years while currently receiving cash or other liquid assets via a monetization transaction, such as a loan.