How to Grow Your Retirement Fund without Growing Your Taxes

Preparing for your retirement is the responsible thing to do. You will need to make sure that you have plenty of income available when you are done working. Retirees will also need to make sure that their retirement is not taxed too heavily once it comes time to withdraw the money. Here are some tips for raising retirement accounts, but not raising your tax debt.InvestingFuturePic

Invest in a Roth IRA

Roth IRA accounts are the best for those who wish to avoid tax on investment and avoid tax after retirement. Any money that you put into the Roth IRA will not be taxed, since you will use after-tax income. With a Roth, your accounts will be free and clear from taxes during the withdrawal period, too.

Annuities

If you invest in annuities for your retirement, the amount that pays out from the principle of your annuity purchase will not be taxed. Interest will be able to be taxed, but if your annuity amount is modest, this will not lead to a major increase in the taxes that you owe after retirement.

Mutual Funds and Real Estate Investments

If you own small properties and investments such as mutual funds on a long-term basis, your tax rate is likely to be 15% or under. With a mixture of Roth accounts, annuities, and investment portfolios with mutual funds and real estate, you can comfortably retire without increasing your taxes much more than you are used to. Using after-tax income to make retirement purchases can benefit you on this year’s taxes and in the long run.

Image credit: StockMonkeys.com

Why Your 2015 IRA Contribution Will Hurt Your Children’s 2016-2017 College Aid

College aid is a huge help for students to afford college. You probably need it to help them get a good standard of living while they are studying in higher education. But your IRA contributions for 2015 may ruin their ability to receive the funding they need.CollegeMoneyPic

This article will explain why.

The Formulas

There are formulas used to calculate whether someone is eligible for college aid, and to how much they are entitled. Unfortunately, it depends on parental household income. These formulas incorporate IRA contributions into the formula, even if for tax purposes they are made exempt.

This means your IRA contributions could prevent your children from gaining the financial aid they need.

Assets in the Plan

On the other hand, the assets already in your plan will not be used within the formula. This is a message that starting to save early will ultimately make it easier for you to deal with things later on. Those in the worst position are parents trying to make ‘catch up’ contributions to make up for lost time.

Is it Worth It?

You may be in a position where you have to choose between IRA contributions and college aid. For many parents, they will reason that they won’t have to pay off the student debt anyway so it’s not their problem. This is really a matter of your personal situation.

Richer families may be able to get away without worrying about college aid, whereas poorer families may choose to decline making IRA contributions, at least for a year or so in order for their children to qualify.

Image credit: F Delventhal

Huddleston Tax CPAs of Seattle & Bellevue
Certified Public Accountants Focused on Small Business

(800) 376-1785
40 Lake Bellevue Suite 100, Bellevue, WA 98005

Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching, Quickbooks consulting, bookkeeping, payroll and business valuation services for small business. We serve Seattle, Bellevue, Redmond, Tacoma, Everett, Kent, Kirkland, Bothell, Lynnwood, Mill Creek, Shoreline, Kenmore, Lake Forest Park, Mountlake Terrace, Renton, Tukwila, Federal Way, Burien, Seatac, Mercer Island, West Seattle, Auburn, Snohomish and Mukilteo. We have a few meeting locations. Call to meet John Huddleston, J.D., LL.M., CPA, Tawni Berg, CPA, Jennifer Zhou, CPA, Jessica Chisholm, CPA or Chuck McClure, CPA. Member WSCPA.