April is Financial Literacy Month. At Paladin Advisor Group, our mission is to help clients Champion Financial Life through:
- A good understanding of your investment strategies
- Financial advice for your daily life and
- Empowering the next generation to make smart financial decisions.
After putting a lot of thought into what financial literacy would mean to our clients, we’ve narrowed down some key elements that - when implemented correctly - could make a difference in how you think, feel, and interact with your money.
Four blogs will be released this month featuring topics to empower you to do just that. We’ll discuss taxes, spending plans, debt management and retirement savings basics. With any questions or comments, please reach out to us. We welcome the opportunity to discuss these topics further with you.
Today the focus is on taxes.
With ten days to go until the state and local tax deadline, you may have already completed your taxes. If you haven't even started yet, luckily for you, the IRS announced an extension of the tax deadline to May 17. In any case, you should be able to put these tips to good use for this year and next year's tax preparation.
So often our clients come to us, asking for a better understanding of how their retirement plans could effect their taxes. The good news is – retirement plans can do a lot to REDUCE your taxes. Your contributions to your employer retirement plan (403b, 457b, 401k) for example, all qualify as pre-tax contributions. Meaning, the amount you contribute toward your employer plans are considered deductible income. The more you contribute to your retirement plan, the less you'll owe in taxes come April of each year.1
Next, let’s talk IRAs.
What’s new for IRA Taxes in 2021? For starters, there is a modified AGI limit for traditional IRA contributions, which has increased from last year. In 2020, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA has reduced (phased out) if your modified AGI is:
- More than $105,000 but less than $125,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $66,000 but less than $76,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return. 2
Under the SECURE Act - in most circumstances - once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or qualified retirement plan. Withdrawals are taxed as ordinary income and if taken before age 59½, may be subject to a 10% federal income tax penalty. 3
Let's finish up with some more good news: Tax Freedom Day.
Have you ever heard of it? Tax Freedom Day is known as the day when you officially start earning income for yourself (think: your actual income - your tax debts) and it's different for everyone. This number and day can be complicated to figure out on your own, but we've made it easy for you. Use our Tax Freedom Day calculator here.
Let us help you.
Hopefully we've given you a lot to think about as we kick off Financial Literacy Month. If you have any questions about the information in this blog, or you'd like to discuss tax tips further, schedule a meeting with us. We welcome the opportunity to meet with you, whether you're a current client or you're just looking to get a better understanding of your finances.
Additional Tax Resources:
1.“How Income Taxes Work.” Paladin Advisor Group, 2021, www.paladinadvisorgroup.com/resource-center/tax/how-income-taxes-work.
2. IRS. “Publication 590 A Contributions to Individual Retirement Arrangements (IRAs) For Use in Preparing 2020 Returns.” IRS.gov Publication, 2021, www.irs.gov/pub/irs-pdf/p590a.pdf.
3. "How to make the tax code work for you." Paladin Advisor Group, 2021, www.paladinadvisorgroup.com/resource-center/tax/how-to-make-the-tax-code-work-for-you.