Tax planning in September? You should and here’s why.

Our daughter starts 1st grade and focus, like many parents, was preparing for back to school. Now that you’ve shared first day photos, it is time to shift gears to tax planning. 

Yes, tax planning. 

Now, not December or April, is an opportune time as it provides roughly 3 months to finalize strategies for the current tax year while positioning for the year ahead. Here are things to consider:

Increase 401(k) - If your social security tax stopped after earning $132,900 this year, consider allocating that amount (or more) to 401(k) contributions. This will help lower your Adjusted Gross Income (AGI) or if a Roth 401(k), increase your tax-free savings for retirement. 

Employee Benefits - For many, fall is open enrollment and once-a-year chance to enroll in a Health Savings Account (HSA) and Flex Spending Accounts (FSAs). 

HSAs require a High Deductible Health Plan and families can contribute up to $7,000, plus another $1,000 if age 55 or older. HSAs enjoy triple-tax benefits, contributions lower your AGI (reducing taxes owed), funds grow tax-free and are not taxed when used for medical expenses, premiums for long term care and medicare. 

FSA contributions lower your AGI and 3 programs available are Medical, Dependent Care (pre-tax up to $5,000) and Transit (commuter or parking). 

FSA: Use It or Lose It - You can plan wisely to spend down your Flex Spending Account (FSA) to the “use it or lose it” amount, rather than rush to buy a 5 year supply of contact lens.

Roth Conversion - This analysis takes time given the variables and assumptions unique to each individual on when/if it becomes beneficial. Most importantly, it should be done towards the end of the year with visibility of projected AGI as these are now irreversible. 

Tax Loss Harvesting - No need to wait for the last days of year. In fact, many managing managers do selling in October or November to comply with wash sale rules and be fully-vested for the new year.

By focusing on tax planning now, you can relax over the holidays with more savings and less taxes. That calls for extra gravy.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

This article appeared in the September 2019 editions of Holliston Local Town Pages, Ashland Local Town Pages and Natick Local Town Pages.

Please call me at (508) 834-7733 or directly schedule a meeting to learn more about considerations for planning and investing so you can balance kids, aging parents and your financial independence.

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