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Episode 70 Year End
Today we’re looking at things you should consider before the end of this year. If you single and have less than $40,400 taxable income in 2021 or $80,800 if married filing jointly you’re in the 0% capital gains tax bracket. You have a capital gain when you sell an asset, like property, stocks, bonds or mutual funds, for more than you paid for it. So this may be an opportunity to sell assets that have grown in value, pay 0% taxes on that profit and reinvest into something else. For more info on the capital gains tax check out Episode 44.
If you saving for college in a 529 account, you may be eligible for State Income tax deductions or credits. Some sates will even add or match contributions for taxpayers with modest incomes. Check out your states 529 account website for rules and details.
If you haven't maxed out your 401k or TSP contributions this year there's still time to increase your savings. For 2021 the max is $19,500 a year or $26,000 if you are 50 or over. At least save enough to get your full match. For BRS military and FERS federal employees, that's at least 5% of you annual income.
If you are single with an Adjusted Gross Income less than $125,000 or Married Filing Jointly with under $198,000 of income, you can contribute earned income to a Roth IRA. And a non-working spouse can also contribute to a ROTH IRA as long as your working spouse has enough earned income. You contribute money to Roth IRA after you’ve paid tax on it. Then it grows tax-free. It's a great way to take advantage of being a low tax bracket now to save something, grow overtime, and be tax-free to you in retirement. You can contribute up to $6,000 a year to an IRA or $7000 a year if you’re 50 or older for this year through April 15, 2022.
If you will be in a higher income tax bracket when you retire, consider doing a Roth conversion. You take money from a traditional IRA, 401k, or TSP, pay income tax now on the withdrawal, and deposit it in a ROTH 401k or ROTH IRA. You cannot covert a traditional TSP into a ROTH TSP. You can convert a Traditional TSP into a ROTH IRA. Conversions must be completed within 60 days of making your withdrawal to avoid penalty. And It is best to use cash to pay the income tax on the conversion, instead of using retirement savings to keep your savings growing and avoid possible early withdrawal penalties. ROTH conversions can take a while, so if you want to do one for 2021, don't delay. To learn more about ROTH accounts listen to Episode 28 Meet Roth, Episode 29 Roth IRA, and Episode 30 To Roth or Not to RotH.
Did you get a raise or a bonus or your spouse start working this year? Did you owe federal income tax or get a big refund last tax season? Then take another look at your federal income tax withholding to make sure you don’t end up with a large tax bill or a refund at the end of next year. The IRS has a great online tool to help you determine how much withholding you should have and print out a new W-4 to your employer. https://apps.irs.gov/app/tax-withholding-estimator
If you do not itemize your taxes you are eligible for a tax deduction for cash charitable contributions you make this year of up to $300 if your single or $600 if MFJ. Save your receiptsand make the gift before the end of the year.
If you have a Flexible Savings Account you may be able to carry over unused benefits from this year into 2022. Check with your particular plan. Federal employee with a FSAFEDS account, can carry over all remaining funds into 2022. But you must re-enroll in the same account(s) during Open Season, Nov 8th to December 13th this year. If you fail to re-enroll, you forfeit all your unused funds. Note though, this benefit carryover only applies to Health Care FSAs. You cannot carry over any balance left in a 2021 Dependent Care FSA.
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By Kathleen "Katie" Cannon
5
22 ratings
Today we’re looking at things you should consider before the end of this year. If you single and have less than $40,400 taxable income in 2021 or $80,800 if married filing jointly you’re in the 0% capital gains tax bracket. You have a capital gain when you sell an asset, like property, stocks, bonds or mutual funds, for more than you paid for it. So this may be an opportunity to sell assets that have grown in value, pay 0% taxes on that profit and reinvest into something else. For more info on the capital gains tax check out Episode 44.
If you saving for college in a 529 account, you may be eligible for State Income tax deductions or credits. Some sates will even add or match contributions for taxpayers with modest incomes. Check out your states 529 account website for rules and details.
If you haven't maxed out your 401k or TSP contributions this year there's still time to increase your savings. For 2021 the max is $19,500 a year or $26,000 if you are 50 or over. At least save enough to get your full match. For BRS military and FERS federal employees, that's at least 5% of you annual income.
If you are single with an Adjusted Gross Income less than $125,000 or Married Filing Jointly with under $198,000 of income, you can contribute earned income to a Roth IRA. And a non-working spouse can also contribute to a ROTH IRA as long as your working spouse has enough earned income. You contribute money to Roth IRA after you’ve paid tax on it. Then it grows tax-free. It's a great way to take advantage of being a low tax bracket now to save something, grow overtime, and be tax-free to you in retirement. You can contribute up to $6,000 a year to an IRA or $7000 a year if you’re 50 or older for this year through April 15, 2022.
If you will be in a higher income tax bracket when you retire, consider doing a Roth conversion. You take money from a traditional IRA, 401k, or TSP, pay income tax now on the withdrawal, and deposit it in a ROTH 401k or ROTH IRA. You cannot covert a traditional TSP into a ROTH TSP. You can convert a Traditional TSP into a ROTH IRA. Conversions must be completed within 60 days of making your withdrawal to avoid penalty. And It is best to use cash to pay the income tax on the conversion, instead of using retirement savings to keep your savings growing and avoid possible early withdrawal penalties. ROTH conversions can take a while, so if you want to do one for 2021, don't delay. To learn more about ROTH accounts listen to Episode 28 Meet Roth, Episode 29 Roth IRA, and Episode 30 To Roth or Not to RotH.
Did you get a raise or a bonus or your spouse start working this year? Did you owe federal income tax or get a big refund last tax season? Then take another look at your federal income tax withholding to make sure you don’t end up with a large tax bill or a refund at the end of next year. The IRS has a great online tool to help you determine how much withholding you should have and print out a new W-4 to your employer. https://apps.irs.gov/app/tax-withholding-estimator
If you do not itemize your taxes you are eligible for a tax deduction for cash charitable contributions you make this year of up to $300 if your single or $600 if MFJ. Save your receiptsand make the gift before the end of the year.
If you have a Flexible Savings Account you may be able to carry over unused benefits from this year into 2022. Check with your particular plan. Federal employee with a FSAFEDS account, can carry over all remaining funds into 2022. But you must re-enroll in the same account(s) during Open Season, Nov 8th to December 13th this year. If you fail to re-enroll, you forfeit all your unused funds. Note though, this benefit carryover only applies to Health Care FSAs. You cannot carry over any balance left in a 2021 Dependent Care FSA.