Tis the Season for Tax Savings

With the holidays right around the corner and the year winding down, it’s easy to get caught up in holiday shopping, get-togethers, and last-minute plans. Many taxpayers also find themselves scrambling to take advantage of last-minute tax saving opportunities before the new year. The good news is that there are still several strategies you can implement to reduce your tax burden and kick off the new year with a little extra holiday cheer.

Maximize Retirement Contributions

One of the easiest and most effective ways to reduce your taxable income and help build a stronger financial future is by contributing to retirement accounts. Pre-tax contributions made to 401(k) and 403(b) plans made before year-end are deducted from your taxable income, which in turn will offset some of your tax bill. For 2024, the contribution limit is $23,000 (or $30,500 if you’re 50 or older).

Additionally, consider making contributions to an Individual Retirement Account (IRA); the limit for this type of account in 2024 is $7,000, or $8,000 if you’re over 50. The type of IRA you choose depends on your financial situation – either a Traditional IRA or Roth IRA. Contributions to Traditional IRAs can reduce your taxable income (subject to income limitations) and defer the income tax to when you withdraw the money for retirement. Roth IRA contributions do not offer an immediate deduction on your return but allow you to make income tax-free withdrawals in retirement.

Tax-Loss Harvesting

If you’ve sold investments throughout the year and realized gains, now may be a great time to offset those gains by selling losing investments in your taxable accounts. This strategy, called tax-loss harvesting, allows you to use losses to reduce your taxable income.

For example, if you have $5,000 in gains and $3,000 in losses, you can offset the $3,000 loss, and only pay taxes on $2,000 of net gains. If your losses exceed your gains, you can deduct up to $3,000 of the remaining loss from your ordinary income. Just be mindful of the wash-sale rule, which prevents you from claiming a loss if you buy the same or substantially identical security 30 days before or after the sale.

Contribute to a Health Savings Account (HSA)

If you’re enrolled in a High Deductible Health Plan (HDHP), a Health Savings Account (HSA) is a powerful tool to reduce your taxable income. HSA contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualifying medical expenses are also tax-free. In other words, an HSA offers a triple tax benefit, making it one of the best last-minute tax strategies.

In 2024, you can contribute up to $4,150 for individual coverage and $8,300 for family coverage. If you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution.

Charitable Giving

Giving to charity not only helps those in need but can also provide a significant tax break. If you itemize your deductions, charitable contributions made before year-end can reduce your taxable income. You can donate cash, goods, or even appreciated securities. Donating stocks or mutual funds that have increased in value can help you avoid capital gains taxes on those gains.

If you are 70½ or older, you may also want to consider making a Qualified Charitable Distribution (QCD) from your IRA. This allows you to donate up to $105,000 directly from your IRA to a charity without having to pay income tax on the distribution. Not only does this give you a charitable deduction, but it also counts toward your required minimum distribution (RMD).

These are just a handful of potential deductions you still have time to make use of before the end of the year. To make sure you’re taking full advantage of every opportunity, consider reaching out to your Certified Public Accountant, who can help you uncover the best strategies tailored to your unique financial situation. Wishing you very happy holidays and a prosperous New Year!

Megan Williams, CPA is a Senior Staff Accountant for Keller & Associates CPAs, PLLC.

Published in the Victoria Advocate. 

Election Year – What to Expect

October has always been one of my favorite months in the calendar year. The air begins to feel more crisp, football season is in full swing, and things can (sometimes) begin to slow down as you approach the holiday season and the year’s end. However, every four years October takes on added significance as the United States Presidential Election approaches. With an upcoming election, there is always a concern of what is to unfold and how to prepare for it.

Tax Policy Implications

Though there will be no incumbent this year, we can defer to ideologies of parties and proposals of tax policy for the current presidential candidates/parties. Some of these policies relate to increasing or decreasing rates for individuals, changes in tax rates of corporations, increases of certain credits and deductions, and many other areas involving tax. The Democrats have proposed raising the top marginal tax rate from 37% to 39.6%, while the Republicans have proposed keeping rates as they are and have been since the Tax Cuts and Jobs Act was enacted in 2018. Currently, the corporate tax rate sits at 21%. The Republican party is proposing lowering this rate to 20%, or even 15% for certain companies. The Democrats are proposing an increase in the corporate tax rate to 28%.  The Democratic party is proposing an increase in the child tax credit. The Republicans are proposing an increase in the deductibility of state and local taxes for those that itemize deductions. These are only a handful of proposed items between the two parties. It is important to familiarize yourself with potential changes in tax policy and how it may affect you and your financial picture. The Tax Foundation website has a good analogy of the different platforms each candidate is proposing in its page “Tracking 2024 Presidential Tax Plans”.

Market Performance

Historical trends involving political headlines have shown markets to have short-lived rallies and dips as investors handle anticipation of what is to come. However, elections have shown little long-term effect on market performance, and do not favor one party or the other. The Standard and Poor’s 500, commonly known as the S&P 500, measures the performance of 500 of the largest companies on U.S. stock exchanges. Since 1928 there have been 24 election years. Per Bloomberg’s annual percentage change of the S&P 500 index, in those election years the index has shown an average price return of 7.49%, and a return of 7.63% in the year following the election.

What To Do

With all the political media we are accustomed to seeing, it can be easy to get excited or anxious depending on your preferences, as to what will happen next. One thing that will never change is that having a plan when it comes to your financial life is a must. If you believe that you or your business may be affected by any potential change in tax policy, do not be afraid to ask questions or contact your Certified Public Accountant and/or CERTIFIED FINANCIAL PLANNER® for professional advice or planning. When it comes to your investments, creating a plan with sights on the long-term can most often weather any situation.

 

Published in the Victoria Advocate

Hayden Schilling, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

 

Business Owners Guide to Corporate Transparency Act

As a business owner, you are no stranger to juggling multiple responsibilities. From managing daily operations to navigating complex regulations and staying on top of finances, the list of tasks seems endless. Just when you think you have a handle on everything, a new hurdle appears on the horizon in the form of the Corporate Transparency Act (CTA), which introduces new reporting requirements that you will need to add to your already full plate. I’m here to break down and briefly explain this new obligation to help you understand what actions you may need to take to stay compliant.

What is the Corporate Transparency Act?

The Corporate Transparency Act is part of a broader effort to detect, prevent and punish terrorism, money laundering and other misconduct through business entities. It requires certain businesses to report information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Who Must Report?

The reporting requirements apply to most corporations, limited liability companies (LLCs), and other entities created by filing documents with a secretary of state or similar office. However, there are some exceptions, including:

  • Publicly traded companies
  • Companies with more than 20 full-time employees and five million in gross receipts
  • Tax-exempt organizations
  • Certain financial services companies already subject to federal regulation
What Information Needs to be Reported?

Companies must report specific information about their beneficial owners – individuals who directly or indirectly exercise substantial control over the company or own or control at least 25% of the company’s ownership interests. The required information includes:

  • Full legal name
  • Date of birth
  • Current residential or business address
  • Unique identifying number from an acceptable identification document (such as a driver’s license or passport)
Ongoing Reporting Requirements

It’s important to note that compliance with the CTA is not a one-time task. After filing the initial report, businesses must update their information within 30 days of any changes to the previously reported details. This can include complex changes in beneficial ownership, such as when shares are transferred or when a new individual takes on a role that qualifies them as a beneficial owner or even simplistic updates such as renewal of a driver’s license or change of address.

When and How to Report?

The reporting requirements took effect on January 1, 2024. Existing companies have until January 1, 2025, to file their initial reports. New companies formed after January 1, 2024, have 30 days from formation to file. Reports are submitted electronically through FinCEN’s secure filing system.

Penalties for Non-Compliance

Failure to comply with these reporting requirements can result in civil penalties of up to $500 per day and criminal penalties including fines up to $10,000 and imprisonment for up to two years.

Importance and Impact to You as a Business Owner

Staying informed and compliant with the CTA helps you avoid fines, penalties and possible imprisonment.

I recommend that all business owners review these requirements carefully and determine if they apply to your operation. If you’re unsure about your obligations or need assistance with compliance, consult with a qualified professional such as your CPA or attorney.

Published in the Victoria Advocate.

Chris Laughhunn, CPA, CFP® is a Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for Keller Wealth Advisors.  

Remote Work Tax Implications

As someone who began remote work during the pandemic and is now the first remote employee for Keller & Associates, I’ve witnessed firsthand the transformation of the traditional work environment. While this shift offers flexibility and convenience for employees and employers alike, it also brings forth various tax implications that both individuals and businesses must navigate carefully.

Payroll Taxes

Businesses employing remote workers must review and adjust their payroll and tax withholding practices to comply with varying state regulations. Accurate withholding is crucial to avoid penalties and administrative burdens. Since payroll taxes must be based on the employee’s work location rather than the company’s primary location, employers must ensure compliance with tax requirements in each state or country where their employees work. Implementing advanced payroll systems that can handle these complexities and accurately manage tax calculations and withholdings for each employee’s work location is essential for effective remote work management.

Federal and State Income Tax Withholding

State income tax withholding is another consideration when employees work remotely across state lines. Employers must ensure they are withholding the correct amount of state income tax based on the employee’s remote work location. Typically, the state where the employee physically works determines the withholding requirements. For those working in multiple states, filing tax returns in each state may be necessary, and withholding may need to be adjusted according to the proportion of work performed in each state. Additionally, employees and employers should be aware of any reciprocal tax agreements between states; these agreements allow employees to pay income taxes only in their state of residence, even if they work in another state.

State and Local Tax Nexus

One of the most significant tax considerations for businesses transitioning to remote work is the concept of tax nexus. Nexus refers to the connection between a business and a state that obligates the business to collect and remit taxes. When employees work remotely from different states, the business may establish a nexus in those states, potentially subjecting it to additional state and local taxes. It’s important for businesses to assess where their remote employees are located and understand the tax laws in those jurisdictions.

Navigating the Future

As remote work continues to evolve, so too does the tax landscape, introducing new challenges in tax compliance while offering unprecedented flexibility. Both remote employees and employers offering remote positions should consult a Certified Public Accountant (CPA) specializing in multi-state taxation to gain insights into compliance requirements, optimize tax planning strategies, and ensure adherence to applicable state and federal tax laws. In addition to tax considerations, it’s crucial to address other aspects of remote work, such as employment laws, data security, and productivity management, etc. Staying proactive and informed about changing regulations will help navigate remote work taxation effectively and optimize financial outcomes in the digital age.

Megan Williams, CPA is a Senior Staff Accountant for Keller & Associates CPAs, PLLC.

Published in the Victoria Advocate

Maximizing Health Savings Strategies

Are you taking advantage of triple tax benefits? If you are enrolled in a qualifying high-deductible health plan (HDHP), not claimed as a dependent on someone else’s tax return, and not covered by another non-high-deductible health insurance plan, you may be eligible to contribute to a Health Savings Account, or HSA. HSAs are known for their “triple tax benefits” with pre-tax contributions, tax-deferred growth, and tax-free withdrawals for qualifying medical expenses. Both short-term savings and long-term growth can be achieved by smart HSA strategies.

Contributions

Contrary to other types of medical savings accounts, HSA contributions do not have a “use it or lose it” rule; savings stay with you year-to-year, even when you change jobs or become ineligible to contribute. In 2024, a covered individual can contribute $4,150 to their HSA, while covered families can contribute up to $8,300. If you are 55 or older, an additional $1,000 catch-up contribution is available per individual. Have you started a new job and/or obtained HSA eligibility mid-year? As long as you are eligible by December 1st of the year and plan to keep eligibility through the following year, you qualify for a full year’s contribution. Maybe you have a child under age 26 who is still on your insurance, but files their own tax return. A non-dependent child covered under a qualifying family HDHP can contribute up to a separate family limit of $8,300 to their own HSA. Talk about savings! Most often contributions come from payroll deductions, but cash contributions can also be added up to the tax-filing deadline. Be sure you take advantage of an HSA employer match if available, as this is “free money” to you.

Distributions

To receive the advantageous tax benefits, HSA funds must be withdrawn for qualified medical expenses. Common expenses include hospital visits, medical deductibles or copays, drug prescriptions, prescription eyeglasses, or dental work. The list is quite exhaustive, also including common over-the-counter medicines, certain long-term care insurance premiums, and some travel expenses for necessary medical treatment. Funds can be used for the benefit of the HSA owner, spouse, or dependent. Qualified expenses may be paid directly from the HSA. Alternatively, with proper receipts and records, the HSA can reimburse you for any expense incurred after the account was established.

Non-qualified expenses paid from an HSA incur tax and a penalty. Once the owner reaches age 65, taxes apply but the penalty is waived.

Strategies

For minimal, but favorable, tax benefits, contributions are kept in cash and used for medical expenses throughout the year. This strategy treats the HSA like a tax-advantaged bank account. To boost tax-free growth for retirement health expenses, the HSA could alternatively act like an IRA. The maximum contribution is added each year, and funds are invested in the market to grow until retirement. Many people may find a happy medium, where a few years’ medical savings can be set aside in cash and the remainder invested for growth potential. Health care is one of the largest expenses retirees must plan for; keeping this long-term perspective will allow you to reap benefits down the road.

Knowing the rules and deciding the best strategy for your cash flow are both crucial to maximizing your savings through an HSA. Work with a CERTIFIED FINANCIAL PLANNER™ professional to see how you could be taking advantage of triple tax benefits.

Published in the Victoria Advocate. 

Sarah D. Nix is a CFP® professional and Associate Advisor with Keller Wealth Advisors.

Better Than To Receive

The Victoria Bach Festival recently concluded its 49th season, marking another year of exceptional music. As the current President of this enduring organization, I am filled with pride as we prepare for our 50th season next year—a milestone that coincides with my 10th year on the board. Contributing to a cause greater than oneself is a profoundly rewarding experience, and I am grateful to be part of a firm that encourages community volunteering. Through my time volunteering, I have never ceased to be amazed by how generous the people of Victoria can be. While it is noble to give without the expectation of anything in return, your charitable acts may have an even greater impact when done tax-efficiently. Here are some strategies to consider for your next charitable contribution:

Donate Appreciated Stock

They say giving is better than receiving, especially when you can give away a tax bill at the same time! If you have an appreciated security, you can donate the investment directly to a charity. By doing this, you can effectively wipe out the imbedded capital gains tax bill that would have been owed upon the sale. The charity benefits from the full value of the donation, and you may still be eligible for a deduction if you itemize.

Give your RMD

Required Minimum Distributions (RMDs) from IRAs have been a moving target with recent legislative changes. The SECURE Act of 2020 and SECURE Act 2.0 have shifted the beginning RMD age, but the age for Qualified Charitable Distributions (QCDs) from IRAs remains at 70½. A QCD allows individuals to donate directly from their IRA to a charity without incurring tax on the distribution. This is a fantastic way to support a cause and reduce your taxes, provided the funds go directly to the charity and you are 70½ or older (not just reaching 70½ sometime in the year) at the time of the transaction.

Leave your bequest from your IRA

Instead of leaving a charitable bequest in your will, designate a charity as a beneficiary of your IRA. While your heirs would owe taxes on IRA distributions, charities do not. This simple update can reduce potential tax liabilities for your heirs.

Bunching Donations

The Tax Cuts and Jobs Act (TCJA) doubled the standard deduction, which now stands at $14,600 for single filers and $29,200 for married couples filing jointly in 2024. This change made fewer people able to itemize deductions. One effective strategy is to “bunch” donations, making two years’ worth of contributions in one year to surpass the itemization threshold. For instance, donate in January and December of the same year. This strategy may push you over the threshold to itemize every other year, and still receive the standard deduction in the years you are not itemizing.

The Joy of Giving

Beyond the tax benefits, the act of giving has been shown to enrich the giver’s life with joy, improved health, and a stronger sense of purpose. While these strategies may enhance the impact of your donations, the true reward lies in the act of giving itself. For personalized advice, consult a CERTIFIED FINANCIAL PLANNER™ professional who can help you plan efficient and impactful giving.

 

Published in the Victoria Advocate. 

David Faskas CFA, CFP® is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of Keller Wealth Advisors.

What Your Tax Return is Telling You

We are a little over a month removed from yet another tax filing season. Hopefully, you were able to get your respective return(s) filed timely or extended and without any hiccups or stressful encounters. Being a CPA, I often get questions from my friends back home after they have their returns filed such as, “What do I have to do to pay less in taxes?” or comments that sounds something like, “I actually got a really good refund this year!” When it comes to tax planning, optimization should be the end goal as opposed to paying less in taxes and receiving a larger than necessary refund. Here are a few things that your return may be telling you and a few considerations as you work your way through the 2024 tax year.

Tax Payments & Federal Withholding

I often tell clients that paying taxes is not always a terrible thing in and of itself. What is more important is that you do it as efficiently as possible. If you find out at year-end that you are substantially overpaid on your tax return, it may be time to consult with your CPA about adjusting your quarterly payments or filling out a new Form W-4 with your current employer. You have given the IRS an interest free loan with funds you could have been compounding in tax-advantaged investment vehicles! On the flip side, the same can be said for having a larger than expected balance due with filing. Nobody likes a large payment along with their tax return filing that could have been prevented throughout the year with planning and projecting.

Understand Your Income Streams

All of us have distinct types of income. If you are a W-2 earner, managing your federal withholding year over year is critical. If you are self-employed or an independent contractor receiving 1099 income, understand that you are not making tax payments as you receive income and may be subject to quarterly estimated tax payments throughout the year. You may also have supplemental income items such as interest and dividends, capital gains, passive rentals, or private equity income channels to consider. Understanding the ebbs and flows of your income and how it is treated will improve how well you can plan throughout the year.

Knowing What Deductions and Credits Could Apply to You

Contributing to a tax-deferred retirement account or an HSA are great ways to reduce taxable income. This applies to both wage earners and those that are self-employed. Knowing you are soon going to be claiming an eligible dependent or making a large, qualified energy efficient home improvement are just a couple of ways you may have your tax liability offset in a particular year. Informing your CPA in advance may open the door for tax efficient strategies such as converting funds in a Traditional IRA to a Roth IRA.

Whether you have been working for years or recently started your first job, it pays to understand what is unique to you and your tax plan. Contact your trusted Certified Public Accountant for any questions you may have regarding the planning and projecting for your 2024 tax return(s).

Published in the Victoria Advocate. 

Hayden Schilling, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

National Small Business Week

Last week, we celebrated National Small Business Week. Although the official time has passed, it remains an opportune time for small business owners to take a step back and ensure their finances are in order. Running a successful small business requires much more than just passion and hard work – it also demands fiscal discipline and smart money management. Here are a few key financial tips to help small businesses thrive:

Understand Cash Flow

The lifeblood of any business is cash flow. Failing to maintain positive cash flow is one of the top reasons small businesses go under. Implement practices like stringent invoicing, inventory management, and budgeting to ensure you always have enough money flowing in to cover expenses going out. Forecast cash flow regularly and line up lines of credit for unexpected shortfalls. It is better to have these in place and not need them than need them and not have them.

Separate Business and Personal Finances

It is crucial to keep your business and personal finances separate from day one. Open a dedicated business bank account and get a business credit card. Not only does this make accounting easier, but it protects your personal assets if your business faces legal or financial troubles down the road. In other words, treat your business like a business.

Plan for Tax Obligations

Unlike wage income, businesses do not have taxes automatically deducted. Set aside a portion of income each month into a separate “tax savings” account so you have sufficient funds when tax deadlines roll around. Work with an accountant to understand all applicable income, payroll, and sales tax requirements for your business and how that may impact your personal income tax return. Your accountant should also be able to provide tax projections throughout the year to update where you are and what strategies to consider lowering your overall tax burden. A successful tax plan should mean no surprises at tax filing time.

Invest in Your Own Retirement

While reinvesting profits into growing your business is wise, do not neglect your personal retirement savings, even as a business owner. Set up a tax-advantaged retirement account like a SEP IRA, SIMPLE IRA or solo 401(k) to start building your nest egg as soon as possible.

Owning a small business is immensely rewarding – but also comes with significant financial obligations and risks. By practicing disciplined money management from the start, you can go a long way towards achieving small business success.

Published in the Victoria Advocate.

Kyle W. Noack, CPA/CFP® is the Chief Executive Officer for Keller & Associates CPAs, PLLC and Keller Wealth Advisors. 

Your Teen’s Guide to a Summer Job

School is almost out for summer! Teenagers will soon be looking for summer jobs to occupy their free time and earn some cash. I still recall the feeling of receiving my first paycheck, “I am rich!” I thought. Only to find out that Uncle Sam “stole” a portion of my hard-earned money before I could enjoy it myself. I feel like this universal experience was an initiation to adulthood, where the responsibility of a first-time job is met with a hefty dose of reality and financial accountability.

As a parent, you may be concerned that your child will spend their hard-earned money frivolously. Earnings from a summer job can be a low-stake opportunity to promote financial responsibility and financial literacy in your household. Nothing says, “Welcome to Adulthood,” like balancing budgets and filing taxes, but it is a critical lesson to ensure your teen has the tools required to conquer their future financial goals.

Taxes – Once your teen’s first paycheck rolls in, sit down with them to review their payroll deductions. Keep it simple – explain to them that taxes are a contribution that working citizens make to help support the country and governmental agencies. Some deductions, like Social Security and Medicare are required money we put away now, to benefit us later in life, whereas federal income tax withholding is like setting aside a portion of your paycheck upfront, so you don’t have a surprise tax bill at year-end. Help your teen understand that their take home pay (or net pay) is what’s left after these deductions are made, as this will be the money they will utilize to formulate their budget.

Let them know they may also be required to file a tax return. As a tax professional, I hear from my clients, family and friends that they dread tax time. Filing your taxes should not be a daunting task. Lead by example and keep tidy and organized financial records, so your teen will develop a good habit now.

Create a Budget – As your teen earns money, help them to develop a budget. When I was teenager, my parents took me to the bank to set up my first checking account and debit card. At the end of each month, we reviewed the bank statement together. Once it was all calculated, I was almost always surprised by how much money I had spent. Help them to outline their income and expenses, while allocating a portion of their hard-earned money to savings. Budgeting is a concept many grown adults do not practice, and a general understanding of a budget now will promote a strong foundation for the future when their financial situation grows complex.

Savings – You’re never too young to start saving, and the first summer your teen works is a great opportunity to open a savings account. Saving up for a new car or stacking away cash for a college fund can be surprisingly fun! I like to think of it as a challenge, always attempting to beat my personal best each month. The satisfaction of achieving a goal, along with financial security is gratifying, even at a young age.

Now that your teen has earned income, this is an opportune time to talk to them about various investment vehicles, like college savings plans, high-yield savings accounts, certificate of deposits and retirement accounts. Long-term saving plans can be a difficult concept for a young person to grasp, but kickstarting a retirement fund, like a Roth IRA at a young age provides advantageous tax savings over time.

Seize this opportunity to teach your teen about taxes, healthy spending habits and the importance of a functional budget. As your teen reaches adulthood, they will be equipped with the knowledge and skills required for a strong financial future and the ability to make rational financial decisions.

Published in the Victoria Advocate.

Carlee Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

Maximizing Retirement Funding at Tax Time

Another tax season deadline has arrived. Hopefully, you are not a last-minute filer and you have already taken care of filing your tax return. As our firm is wrapping up another busy, yet successful tax season, I thought it may be a good time to discuss some retirement funding opportunities you can review to make sure you are maximizing your options when filing your return.

First, let’s review some traditional pre-tax plans. These retirement account vehicles allow you to contribute pre-tax dollars, which reduces your taxable income for the year. The money grows tax-deferred, but you will pay ordinary income taxes when you make withdrawals in retirement.

401(k) – This is the most common pre-tax option that is provided by employers. Unlike some of the other pre-tax plan options, this funding must be completed before the end of the calendar year. Looking ahead, for 2024 you can contribute up to $23,000 ($30,500 if age 50 or older).

Traditional IRAs – If you qualify based on income limits, traditional IRA contributions may be tax-deductible up to $6,500 ($7,500 if age 50 or older) for 2023. Unlike the 401(k), you still have until April 15th to make your 2023 contributions.

SEP IRA & Solo 401(k) – These plans have options for those who are self-employed. Depending on factors limiting the threshold amounts, these contribution limits are much higher than the other pre-tax plans discussed. For 2023, SEP IRA contributions may be tax deductible up to $66,000 and the Solo 401k may be tax deductible up to $66,000 ($73,500 if age 50 or older). These plans can still be funded by April 15th or October 15th with a timely filed tax return extension and counted toward 2023.

The other group of plans I want to review are some after-tax plans. Contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free. Meaning no current tax deduction but with future benefit in mind.

Roth 401(k) – Offered by some employer plans, this allows after-tax contributions and tax-free withdrawals in retirement. Limits are the same as traditional 401(k) and the contributions must be completed by the end of the calendar year. There is ample time to update payroll contributions for 2024.

Roth IRAs – Limits are the same as Traditional IRAs. These contributions offer no immediate tax deduction, but unlimited tax-free growth potential. These plans can also be funded until April 15th to have contributions count toward the 2023 tax year.

Roth SEP IRA & Solo 401(k) – These plans have been created and/or revised by the SECURE 2.0 Act of 2023. With some nuances, the contribution limits are the same as the pre-tax options. Roth versions of the SEP IRA and Solo 401(k) allow after-tax contributions and tax-free growth. These plans can still be funded by April 15th or October 15th with a timely filed tax return extension and count toward 2023.

Tax strategy is key when evaluating pre-tax vs. Roth options. Pre-tax offers an upfront deduction but is taxed later. Roth has no upfront deduction but can build a source of tax-free income in retirement.

No matter which path is right for you, maximizing retirement contributions can pay off through reducing current and future tax liability while building your nest egg. Tax season is the ideal time to review your retirement accumulation plan with your financial advisor.

Published in the Victoria Advocate

Christopher Laughhunn CPA/CFP® is the Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for Keller Wealth Advisors.

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