With 2020 coming to an end, we thought it would be a good time to remind everyone of a few tax planning strategies that can be easily overlooked:
- Maximize your 401(K) or other employer plan contributions – Saving funds on a pre-tax basis in a retirement account allows them to grow tax-deferred until they are withdrawn in retirement.
- Contribute to your Health Savings Account (HSA) – An HSA is an often overlooked savings vehicle that allows individuals covered by high-deductible health insurance plans to save money on a pre-tax basis. The funds then grow tax-deferred and if used for medical expenses can be withdrawn tax-free. These are sometimes called the triple tax advantages of an HSA.
- Get going on 529 contributions – If you have children (or grandchildren, nieces, nephews, or anyone that may attend school in the future), a 529 may be the right savings vehicle for you. The tax deductibility of these contributions depends on your state of residence, and any contributions grow tax-free so long as they are used for qualified education expenses.
- Contribute to a cause you care about – If you don’t have a charitable organization that you want to support directly in 2020, you can open a Donor Advised Fund to make the charitable contribution this year, allowing you to gift to your favorite charitable organization later. You receive the tax deduction in the year of contribution to the Donor Fund, and this also allows your funds to stay invested, and potentially grow, so that you can give away greater amounts in the future.
- Think about financial gifts to individuals – While gifts to individuals are not tax deductible, they are a great way to lower your overall estate and reduce the amount that is potentially subject to estate taxes in the future. Cumulative gifts to an individual up to $15,000 [$30,000 for a married couple filing jointly in 2020] are under the annual gift exclusion and do not require a gift tax return to be filed. If you give more than $15,000 to one person, you may have to file a gift tax return and would encourage you to consult with your tax professional.
For some individuals it makes sense to accelerate their tax deductions in 2020, and for others it may make sense to delay their deductions until 2021. One of the things we do at Hill Investment Group is work with our clients’ clients’ CPAs and estate attorneys to ensure they are maximizing not only their portfolio with us, but their complete financial picture. Feel free to give us a call to discuss.