It’s been a unique year. We have seen the market rebound and inflation slow down while also experiencing interest rates reaching highs, we have not seen in over two decades. It is important to remember that the end goal shouldn’t be blindly pushing income into the following year or pulling any expenses into the current year without understanding the long-term effects. The focus should be on key strategies of year-end tax planning. Baltimore Washington Financial Advisors can help you with this process, so read on for more information!
Revisit Your Health Savings Account (HSA) and Flexible Savings Account (FSA)
Make sure you use the funds in your FSA account before they’re gone. Your FSA money will reset annually, and $615 can roll over into the new year only if your employer allows it. Revisit any contribution rates for HSA and attempt to increase each year until you reach the plan limit. HSAs are triple tax-advantaged, which means the money going into the HSA is not taxed, and no taxes are owed on your earnings or withdrawals if it’s spent on qualified medical expenses.
Roth conversions can be very impactful when there’s a gap between your taxable income and the very next tax bracket. You could convert that difference into a Roth account. You’ll pay taxes on the amount converted, but you don’t have to pay taxes when you withdraw from the Roth account. Subsequently, the funds in your Roth account are then able to grow tax-free. Contact our team to review your specific situation.
Maximize Your Retirement Savings
There might need to be more time this year to change how your retirement savings could affect your taxes. So, it is important to maximize your retirement savings all throughout the year. In fact, the more income that is contributed each year to your tax-deferred retirement plan, the lower your taxable income becomes. Remember, you can contribute money towards retirement on both a pre-tax and after-tax basis.
There are different kinds of accounts, including taxable (like a savings, checking, or investment account) and tax-deferred accounts, like a 401k. To minimize taxes you owe, you could hold your more tax-efficient assets, like tax-free bonds or exchange-traded funds, in the taxable accounts and your less tax-efficient assets in your tax-deferred accounts. As a result, this could help minimize higher taxes as time passes. Contact our team to learn about asset location strategies for year-end tax planning!
For All Types of Financial Services, Contact Baltimore-Washington Financial Advisors Today!
Baltimore-Washington Financial Advisors is a nationally recognized Fee-Only and Fiduciary wealth management firm, providing comprehensive wealth management since 1986. We integrate investment management, retirement and estate planning, and tax services so you can relax knowing your money is safe. We serve clients throughout the Mid-Atlantic, nationally, and specifically in Annapolis, Baltimore, Ellicott City, Hunt Valley, Catonsville, Pikesville, Bethesda, Columbia, Rockville, Gaithersburg, and more! We’re here to provide you with the best services and advice when you need it. For more information on how we can help, visit our website, or give us a call at 410-461-3900!