In our experience, nearly everyone would like to have more money.
Whether it's for showering friends and family with gifts, donating to favorite causes or getting around to those projects around the house you've been putting off, everyone could use a little extra cash. It's also been our experience that one of the quickest ways we can help people see more money in their bank accounts is not by creating new income streams, but through tax planning.
By being smart about the way you save, you can potentially save thousands of dollars a year without taking on another job or selling off your investments. To help you get started, here are a few tax-smart savings strategies to help you have more money now and in retirement.
For high income earners, use tax-deferred savings options
The majority of people in their mid- to late-50s are reaching the height of their careers. And for many of them, that means they are making more money now that they ever have, and likely more than they'll need in retirement. Because of that, we recommend that individuals in this situation use tax-deferred options, like 401(k)s or individual retirement accounts, to help lower their taxable income now. Depending on how much you put away, this strategy could also help to keep you in a lower tax bracket, keeping more of your hard earned money in your pocket.
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Consider an health savings account if eligible
An HSA is a tax-advantaged savings account that gives you the best of both worlds when used for qualified medical expenses. Not only do you get to put money into the account tax-free, meaning you pay fewer taxes and see more in your bank accounts now, you also get to take it out tax-free, as long as it's used for an eligible expense.
The other major positive to these accounts is that you get to keep anything you put away forever, and if you're healthy enough not to need all of the income during your working years, your HSA works as an IRA after age 65. However, you must have a high deductible health plan in order to be order to open an HSA.
Talk to your health care provider or employer with any questions on these accounts.
Use a Roth IRA, if possible
A Roth IRA has been around for over 20 years now and allows investors to pay tax up front, while letting that principle grow tax-free. These accounts are a no brainer for the young investor who has decades before he or she may need the income, but you don't need be 30 years old to make use of a Roth IRA.
In order to withdraw money tax- and penalty-free from a Roth IRA, you have to own the account for at least five years and be at least 59.5 years old. So if you are in your early 50s and believe you're making less money now than you'll withdraw from investments when you retire, these are still a great option to consider. You'll have to pay the tax now, but the bump to your paycheck will come when you withdraw your investment and its earnings tax-free.
These are just a few of the tax strategies that can help you keep more of your hard-earned money. Talk to your adviser and a tax specialist about which options might work for you.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
