Deferring compensation now could help in retirement: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Deferring compensation now could help you in retirement
Corporate executives are advised to stock away some of their income in a company-sponsored non-qualified deferred compensation plan to save for retirement, an expert with CNBC writes. Such plans provide tax-free compounded growth on investments and offer a broad menu of attractive options, the expert says. "Basic modeling shows that assets invested inside a deferred compensation plan for 10 years would grow 1.75% more annually than the same amount invested for the same period receiving identical returns."
How to combat risk with TIPS
TIPS are investment options for bond investors to counter higher interest rates and lower bond prices that result from inflation, according to this article on Equities.com. These products can be a bargain if they are purchased when inflation projections are lower than CPI increases. However, clients holding TIPS in a tax-deferred account owe federal taxes on annual adjustments related to the CPI, even if the investors did not receive these adjustments as income.
An overlooked vehicle for retirement savings
Many clients realize that an HSA is a great savings vehicle they can use not only to save for medical expenses but also to help build their nest egg, Morningstar's Christine Benz writes. "[T]he tax benefits of HSAs are so generous that even people with more significant health care costs might consider paying those expenses out of pocket, provided they can afford to do so, allowing the money can continue to compound in the HSA," Benz writes. However, "the tax benefits of HSAs, which are only available to those who are covered by a high-deductible health care plan, are such that individuals should revisit that decision — especially if they're already taking advantage of other retirement savings options like IRAs and 401(k)s."
Here’s how to decide whether your client should select the traditional or Roth IRA to put away for retirement and boost their savings.March 24
When your emergency fund runs out
Cash-strapped clients should weigh other options before tapping into their retirement accounts to cover emergency expenses, according to NerdWallet. That's because withdrawals from these accounts would trigger income taxes and hefty penalties. It also prevents the money from growing tax-deferred through compounding in the account that could help secure their retirement.
How Trump’s ‘greatest tax cut in history’ may impact you, in one simple calculator
MarketWatch has developed an online calculator that will allow clients to make a good estimate of the impact of the Trump administration's tax principles on their returns. A recent study has found that middle-class homeowners could expect a spike in their taxes, with renters and taxpayers earning more than $250,000 annually to see a decline in their tax bill.