Five Tips to Help You Save Taxes and Build Savings

Tax policy will be driven by the current administration and you may wonder, “How does that affect me?”.  What can I do?  What does savings have to do with it?

But, trying to predict what may happen to your future taxes and savings is a lesson in spinning plates. You never know what plates drop first. Here are some tips on ways to take advantage of what we do know about taxes and savings.

Savings Options

#1. Roth Conversions: Individuals pay ordinary income tax when converting a traditional IRA to a Roth IRA. The fair market value of the securities or cash becomes income for the year on the day the conversion is recorded. At today’s tax rates it may be better this year than waiting. There is no longer an income limit on conversions so anyone with IRA’s can convert. Because it may push you into a higher income tax bracket, conversions should be discussed with a tax professional. Now is a great time of year to talk about your options.  As a result of conversions,  the earlier you convert the longer the assets have to grow.Roth IRA Conversions learn pros and cons

#2. Consider municipal bonds as a tax-free income possibility. Even if you aren’t in high tax brackets a municipal bond gives you a low-risk option for earning a little more on your investments.  Bond rates are lower than they have been in a long time so this is definitely a strategy to lower taxable income and to diversify your fixed income portfolio.  This may not lead to higher income, but can result in less volatility.

Asset Allocation

#3. Revisit your asset allocation. As part of your review process, don’t get caught up in what you missed but align your portfolio with your goals. The best thing is to do is bring your 1040 or tax forms with you to your next review. Let your tax professional know who your advisor is and vice versa.  If your portfolio isn’t being rebalanced it can cause your financial plan to become weaker. And there may be opportunities to look at capital gains and losses for more favorable tax treatment.

Estate Planning

#4. Revisit your estate plan. If you don’t have a plan, let’s discuss where you are and if you need one.  Oregon has a very high tax rate for estates over a million in assets. AARP article on state estate tax The federal estate tax is over 11 million.

#5. Lastly, don’t let the tail wag the dog when it comes to savings.  Save early, save often is good advice and leads to having a solid financial plan.  This becomes a better plan for dealing with uncertain times.  You also create a stronger estate plan.

If you want to look at what your taxes may look like under different policies go to Tax Foundation.  Taxes and Savings can work in your favor, but you must be proactive in finding out what works best for you.  Check out our blogs for more. It’s Tax Time: Tips for Getting Organized