How to Maximize Your Tax Savings This Year
As a CERTIFIED FINANCIAL PLANNER® professional, I’m committed to helping you pursue your financial goals. One critical aspect of this is reducing your tax burden.
In this quick video, I discuss a few strategies for optimizing your tax savings, including:
- Maximizing retirement account contributions
- Leveraging Roth conversions
- Contributing to a health savings account (HSA)
- Utilizing estate planning techniques
Watch the video at your convenience and feel free to reach out with any questions!
Transcript
Hi, I’m Joe Dowdall, a Certified Financial Planner at Worth Asset Management. As someone who creates customized financial plans for people who are nearing or in retirement, I get to see the effect that taxes have on people in all stages of life, but especially in retirement. And the fact of the matter is many people overpay their taxes.
Now, there are many strategies that you can use to help lower your tax bill, but I thought as we enter tax season, let’s go over a few of the more common ones that you may be able to implement to help lower your tax bill.
Maximizing Retirement Contributions
First up is maximizing retirement contributions. Retirement plans offer useful tax incentives that are not available by simply just saving your money in the bank, as an example.
Now, there are many different types of accounts to consider—401(k), 403(b), 457, to name a few. Now, these employer-sponsored accounts allow for higher contribution limits and often include employer matching. On top of that, they provide tax-deferred growth on the investments.
Now, you may consider a traditional IRA, and in some cases—I would say in most cases—contributions to traditional IRAs will provide a tax deduction in the year of the contribution and also provide tax-deferred growth until withdrawals are made, typically in retirement.
Now, a Roth IRA may not provide you any tax benefit in the year of the contribution, but those dollars are going to grow tax-free, and qualified distributions are also made tax-free.
And don’t forget, if you’re over 50, you have this special opportunity to make a catch-up contribution, which provides you the ability to contribute more than someone who’s under 50.
And new this year, if you’re 60 to 63 in that age range, you can do even more of a contribution. And again, those contributions, depending on your income, may be tax-deferred.
Using a Health Savings Account (HSA) for Tax Benefits
Another way to reduce your tax obligation is through a health savings account, also called an HSA. A health savings account offers triple tax benefits—your contributions are tax-deductible, your earnings are tax-free, and you can withdraw funds tax-free as long as it’s used for a qualified medical expense.
Another great feature of a health savings account is that the balance rolls over each year. You don’t have to use it all up. And at age 65, that account becomes very similar to a traditional IRA, which to me is just awesome.
So I strongly recommend, if you’re looking for ways to reduce your tax obligation, you may want to consider a health savings account.
The Power of Roth IRA Conversions
I would not be able to do a video about tax planning and tax strategy without at least mentioning one of my favorite strategies, which is the Roth IRA conversion.
Now, I’ve spent much of this video talking about ways to reduce your tax bill in a given year. Believe it or not, a Roth IRA conversion could very likely increase your tax bill in a given year.
So why would I include that here? Well, in my opinion, the purpose of tax planning is to reduce your lifetime tax bill.
Well, if you find yourself in a given year—maybe this year is that year—where your income is way down, maybe you had a lot of deductible expenses, well, it might be an opportunity for you to take advantage of that lower income tax bracket by moving money or converting money from your traditional IRA to your Roth IRA.
Now, the process is very complex. You need to make sure you’re considering a lot of variables. But in my opinion, you should be reviewing this every single year to see if it makes sense for you.
Some of the benefits of Roth IRAs—no required minimum distribution. So down the road in the future, when you turn 73 or 75, you’re not going to be forced to take money out of that account.
In addition, if you still have that account when you pass on, your heirs will receive tax-free money as well. So not only do you get to benefit from the tax-free distributions, as long as you follow the rules, your beneficiaries of that account will as well.
Roth conversions, as I mentioned, can be a very valuable and powerful tool, but the timing and the tax implications are complex. I would strongly recommend consulting a financial advisor to help you determine if this strategy aligns with your goals and objectives.
Estate Planning and the Annual Gift Tax Exclusion
The last strategy I want to talk about is actually an estate planning strategy. One of the more common estate planning strategy techniques is utilizing the annual gift tax exclusion. Now, in 2024, that exclusion amount was $18,000. In 2025, that amount is $19,000.
So what does this mean? This means that a taxpayer can give up to $19,000 per person and not have any gift tax implication. And that gift tax also transfers over to estate tax. So it’s essentially a way to give money up to that limit without having any implications on your gift tax or estate tax.
So if you find yourself in a space where you’re financially able to give maybe to family, loved ones, whatever it may be, and you give under that exemption amount, again, that may be a good way to reduce your gift tax and estate tax liability.
Take Control of Your Taxes Today
Have I piqued your interest? Are you curious if there are other strategies that you may want to implement to reduce your tax bill as you’re planning for or in retirement? Well, if I have, give me a call. There’s no cost. There’s no obligation. And if I can help you, wonderful. And if I can’t, that’s okay.
My phone number is 469-423-1989 or send me an email, joe@worthassetmgmt.com. Happy to visit. And again, if I can help you, wonderful. And if I can’t, that’s okay. I will let you know. All right. I look forward to hearing from you soon.