Published by Kerry Meath-Sinkin
With tax season approaching, it is a great time to do one final review to make sure you have reviewed your 2017 income tax bill and made all of the appropriate contributions. If you haven’t already done so, I included a quick checklist below with some points to review. As always be sure to talk with your financial advisor, or tax accountant about your personal situation.
Retirement Savings Contributions
- Individual Retirement Accounts (IRAs) – Making a tax-deductible contribution to an IRA is a great way to reduce your taxes for 2017. For 2017, the limit is the lesser of your earnings or $5,500 per person ($6,500 if you are over the age of 50 anytime during 2017). If you are married, remember you may also be able to make a contribution for your spouse who didn’t have any earnings. A few points to remember on a tax-deductible IRA contribution. First, you must be under age 70 ½. Second, if you are covered by a retirement plan at work, you can only deduct the full contribution if your modified income is below $62,000 for an individual, or $99,000 for married couples filing jointly. Be sure to check with your tax preparer to see if this might be appropriate for you. The deadline for 2017 contributions is April 17, 2018.
- Roth IRA – While Roth IRA contributions aren’t tax deductible, a contribution may still make sense because of the ability to earn tax free retirement income later on. Similar to a traditional IRA, the contribution is $5,500 per individual ($11,000 joint), and contributions are due by April 17, 2018. You may also be able to get a tax break due to the Saver’s Credit.
Education Planning
- 529 Plans – You may not know but seven states allow you to get a 2017 state income tax break on contributions made to the resident state 529 plan, even is the contribution is made in early 2018. Unfortunately, in MN we are not among the states, but it may still be worth checking out. Click here to learn more.
Health Savings Account
- Clients who are covered by a qualifying high-deductible health insurance plan, who are not covered by Medicare can lower than 2017 tax bill by making a tax-deductible contribution to their Health Savings Account. The deadline for HSA contributions is April 17, 2018. The HSA limit for 2017 was $3,400 for individuals, and $6,750 for families. HSA owners age 50 year or older can add an additional $1,000 over those limits. If you aren’t already you can also invest those unused HSA dollars.
The following are less likely to apply to you, but I will mention them anyways.
- Roth Conversion (Undo deadline) If you did convert your money from an IRA to a Roth IRA in 2017 you have until April 17, 2018 to under the conversion for 2017.
- RMD Deadline – For those who turned 70 ½ in 2017 remember to take your required minimum distributions. Failure to take the RMD out by the deadline could cost you a penalty equal to 50% of the RMD amount, on top of taxes already paid on it.
Your Fees
If you are working with an advisor, the investment management fees paid by you may still be tax deductible for 2017. Remember this deduction will be removed for 2018 and beyond.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Limitations and Early Withdrawals: Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.
Retirement Plans: Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
Roth IRA: Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.
Kerry Meath-Sinkin is a registered investment advisor and financial planner based in Minneapolis. She graduated with honors from Brown, and works with clients not only in the Twin Cities, but nationwide. Kerry believes in a holistic approach to finance. She works with her clients to develop a practical plan with their finances, while also working on their inner relationship with money. Together, these aspects allow clients to feel healthy, abundant, and free. Kerry also has a passion for healthy living, is a certified Ayurvedic practitioner, and public health educator. Click here to learn more about Kerry.
