There are still tax savings strategies, for tax year 2016, you can implement before the April 18th tax deadline. Two major opportunities, which I have outlined in further detail below, include contributing to a Health Savings Account, and contributing to an IRA.
Contributions to a Health Savings Account
If you are employed, and have the option for a High Deductible Health Plan, you qualify for a Health Savings Account (HSA). Funds in an HSA account do not expire and can be used even after you leave your place of employment.
YOU HAVE UNTIL THE 4/18 TAX DEADLINE TO MAKE 2016 CONTRIBUTIONS TO YOUR HSA ACCOUNT.
Making a contribution:
- Typically contributions to an HSA are made through payroll. Now that we are past the end of 2016 you will need to make the contribution personally.
- To make these contributions you can:
- Write a check to your HSA provider with a memo note of “2016 contribution.”
- Transfer funds into your HSA account online and indicate “2016 contribution.”
- An HSA contribution is an above the line deduction to get you to your adjusted gross income (AGI).
Contribution limits:
- Single plan annual contribution limit – $3,350
- Family plan annual contribution limit – $6,750
- If you are over 55 years of age you can make an additional annual contribution of $1,000
- There are no limitations based on income level
Contributions to an IRA
There are three different types of IRA accounts (Traditional IRA, Roth IRA and SEP IRA) all with specific requirements to be aware of.
YOU HAVE UNTIL THE 4/18 TAX DEADLINE TO MAKE CONTRIBUTIONS TO YOUR TRADITIONAL AND ROTH IRA ACCOUNTS. IF YOU EXTEND, YOU HAVE UNTIL THE EXTENSION DEADLINE OF 10/15 TO MAKE CONTRIBUTIONS TO YOUR SEP IRA ACCOUNT.
Making a contribution:
- Make a contribution online
- Write a check to brokerage firm
- A Traditional IRA contribution is an above the line deduction to get you to your adjusted gross income (AGI).
Contribution limits:
Traditional IRA
- Annual contribution limit – $5,500
- 50+ years of age annual contribution limit – $6,500
- For married filing joint taxpayers there is a $98,000 income threshold to still receive the full deduction on the IRA contribution of $5,500
- For income levels between $98,000 – $118,000 your deduction starts to phase out
- Once your income level goes above $118,000 you are completely phased out
- Although you cannot receive a deduction on your IRA contribution if your income level is above $118,000, you do have the option to contribute to a nondeductible Traditional IRA. If you choose to contribute to a nondeductible Traditional IRA you may have the option to convert to a Roth IRA. Everyone’s situation is unique, and dependent on individual circumstances, so please contact me to learn more.
Roth IRA
- Annual contribution limit – $5,500
- 50+ years of age annual contribution limit – $6,500
- There is no tax deduction allowed for Roth IRA contributions
- Beneficial because contributions grow tax free and money can be taken out tax free
- Married filing joint taxpayers making over $194,000 are ineligible to make this contribution
SEP IRA
- Annual contribution limit – 25% of self-employed income or a maximum amount of $53,000
- You do not have to contribute every year
Thinking Ahead for the 2017 Tax Year
- You can start contributing sooner to your HSA and IRA accounts. The only difference for the 2017 tax year is an increase of $50 to the HSA contribution limit for a single plan. Family plans will remain the same.
- The 401K deferral is staying the same at $18,000 and the catch up contribution is remaining the same at $6,000. If you are turning 50 this year, even if you have not turned 50 yet, you can start making catch up contributions now. To make a catch up contribution contact your Human Resource Department at your place of employment.
- If you have children, grandchildren, nieces and nephews, etc. and want to start investing in their college education you can contribute to a 529 plan. This money grows tax free, and there are no implications as long as you use it for a qualified tuition expenses.
a. For New York State residents you can make a contribution up to $10,000 and receive a benefit on your New York State tax return. To receive this benefit your contribution must be to a New York State 529 Plan.
To learn more on this topic tune into our podcast https://www.teamdkb.com/team-dkb-insight/podcast-a-dose-of-dkb#2017
