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Tax and Retirement Strategies To Consider Before the New Year Thumbnail

Tax and Retirement Strategies To Consider Before the New Year

As the end of the year approaches, assess your current financial situation, maximize deductions where you can, and set yourself up for success in the new year. Review our list of strategies you may still be able to complete before December 31. 

Reduce Taxable Income

  1. Delay or defer income to another year if it is possible and prudent. Make sure you consult with your CPA to confirm this is a viable option for your situation.

Maximize Your Deductions

  1. Sell stocks or mutual funds that are in a loss position. You can offset the loss against other capital gains or capital gain dividends. Any loss in excess of capital gains is deductible against your ordinary income up to $3,000 per year. Finally, any loss of more than $3,000 can be carried forward and used against future capital gains.
  2. Maximize your retirement contributions. The 2021 maximum 401(k) deferral amounts are $19,500 with an additional $6,500 catch-up limit if age 50 or older. For 2022, the 401(k) amount increases to $20,500 and there is no change in the catch-up limit.  
  3. Maximize Health Savings Account (HSA) contributions. The single contribution rate is $3,600 and the family contribution rate is $7,200. You can contribute an additional $1,000 if age 55 or older. For 2022, contribution limits increase $50 for self-only coverage and $100 for family coverage.
  4. Keep track of your additional sales tax on home additions and car purchases. If you have made large ticket purchases during the year, you may be able to get an additional deduction on your tax return.
  5. Gather receipts and assorted paperwork for tax preparation. The standard deduction for the 2021 tax year has risen to $12,550 for single filers and $25,100 for joint. If you think it might be better for you to itemize, now would be a good time to collect paperwork recording your deductions. 

Other Strategies

The strategies below don’t necessarily result in taxable deductions, but some options do provide tax-free or tax-deferred savings options:

  1. Maximize IRA contributions. Even if the contributions aren’t deductible, the growth is tax-deferred.
  2. Consider a “backdoor” Roth IRA. If your income is too high to fund a Roth IRA directly, you may be eligible to contribute via a backdoor Roth IRA by converting your traditional IRA assets to a Roth IRA. This strategy may not work if you have a regular IRA. Consult with your advisor before trying to fund a backdoor Roth account. *This strategy is proposed to end as part of the Build Back Better bill approved by the House on November 19. 
  3. Fund a child’s Roth IRA. If you have a child who has earned money, you can help them fund a Roth IRA up to the amount of their earned income (or $6,000 per year), whichever is less. Since most children and teens are in low tax brackets, a Roth IRA is a great way for kids to save money on a tax-free basis and start them on the path to a smart long-term investment plan.
  4. If you are a Washington resident and have a long-term care insurance policy, opt-out of the state insurance program. You have a one-time opportunity to opt-out of this tax by applying for an exemption from the Employer Security Department between October 1, 2021, and December 31, 2022. To opt-out, you must prove that you had another long-term care insurance policy in place by November 1, 2021. Choosing this option is permanent and you cannot reenter the program. Your employer must maintain a copy of your waiver certificate. 

If you have any questions about these strategies, please contact your Soundmark advisor

This content is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.


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