Ways for parents to avoid an education debt trap: Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Avoiding the debt trap for clients with children seeking higher education
Parents are advised to start saving early to prepare financially for their children's higher education expenses, an expert writes in Kiplinger. These clients should consider socking money away in a 529 plan, which is "easy to use, allow[s] for tax-free or tax-deferred growth, and [is] offered by most mutual fund companies," he says. "In many cases, debt is the only way to pay for the high cost of a college education, but I recommend to my clients to avoid debt if at all possible."

10 year-end tax tips for clients
Contributing pretax dollars to 401(k)s or HSAs, doing a Roth conversion and bunching charitable contributions are some of the year-end strategies that clients should consider in order to boost their tax savings next year, according to this article in Yahoo Finance. Seniors who have to take mandatory distributions from their retirement accounts can avoid the tax liability for these withdrawals by donating the money directly to charity. Those who are in a low tax bracket can take advantage of the situation by harvesting capital gains.

Could your client benefit by using a qualified charitable distribution?
A qualified charitable distribution is a tax-efficient strategy for retirees who have no need for RMDs from their traditional IRAs and want to make charitable donations, writes a Forbes contributor. Aside from avoiding taxes on the RMD, a QCD will not boost their adjusted gross income, resulting in phase-outs for tax items such as Medicare premiums, itemized deductions and some tax credits, the expert says. "Also, making charitable donations by using a QCD may enable you to bypass the rule that limits tax-deductible charitable gifts to 60% of your AGI."

Everybody wants a way to pay less in taxes
The 12 brackets of the estate tax will remain the same for 2020, and while clients may face a tentative estate tax, they could end up owing nothing to the IRS thanks to the unified gift and estate tax credit, according to this article in Motley Fool. The tax break allows taxpayers with assets not greater than $11.58 million to avoid any estate tax bill. Giving cash gifts to a spouse, charity or loved ones is another strategy for clients with sizeable estate to minimize their tax burden.

The average expense ratio among the top-performers is 40 basis points higher than the average.
April 9


3 ways to offset the rising costs of health care
Funding an HSA is one strategy for clients with high deductible health insurance plans to minimize the rising cost of health care, writes an expert in MarketWatch. Contributions to an HSA are made on a pretax basis, with additional 7.65% savings if these contributions are withheld from payroll, the expert says. "First, if you use your health savings account funds to pay for out-of-pocket expenses, you could save 25% to 30% off the expense by using tax-deductible dollars. In addition, HSA interest and investment earnings are tax-free, and so are withdrawals for qualified medical expenses."

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529 plans HSAs Retirement planning 401(k) Charitable deductions RMDs Tax breaks