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Read This Before You File Your Taxes!

Read This Before You File Your Taxes! - Here are a few last-minute ways to reduce your tax bill and save for retirement at the same time.

By Geoff Curran, Wealth Advisor CPA/ABV, CFA®, CFP®
Published On 02/15/2018


Before filing your tax return, take a few moments to consider the extra ways you can reduce your tax bill and maximize your retirement savings at the same time. Certain retirement account contributions provide tax-deductions or opportunities for future tax planning.

To qualify to contribute to any of the following accounts, you or your spouse must have earned income in 2017. You must open and fund these accounts before the normal tax filing deadline of Monday, April 16, 2018. With one exception, for the SEP IRA, filing for an extension does not extend the time you have to make contributions.

Here are some account contributions that can reduce your tax bill.

  • Traditional IRAs: Contribute up to $5,500 or $6,500 if age 50 or older with the $1,000 catch-up contribution. You’ll receive a tax deduction in the amount of your contribution. If neither you nor your spouse is covered by a retirement plan at work, you will receive the tax deduction regardless of how much money you make. If you or your spouse is covered by a plan at work, certain earnings limits apply. Check the IRS website to determine if you’re eligible to deduct your contribution.
  • SEP IRAs: Contribute the lesser of $54,000 or 25% of your total self-employment compensation if you work in a business you own. There’s no special catch-up for being age 50 or older.

Note: The deadline to open and fund a SEP IRA is the due date of your tax return. This means if you file for an extension, you may still fund a SEP IRA for tax year 2017 if you do so by the extension deadline, which is October 15, 2018.

  • Health savings accounts: Contribute up to $6,750 for a family or $3,400 for a single individual. You can contribute an extra $1,000 if you’re age 55 or older. To qualify, you must have been enrolled in a high deductible health plan in 2017. These contributions are tax deductible.

Note: If you contributed to an HSA through your employer’s paycheck deferral, you aren’t subject to payroll taxes on the dollars contributed.

Here are some other contributions to consider.

  • Roth IRAs: Contribute up to $5,500 or $6,500 if age 50 or older with the $1,000 catch-up contribution. Your contribution eligibility phases out if your income exceeds $186,000 if married or $118,000 if single. Consider a “backdoor” Roth IRA, discussed below, if your income exceeds the 2017 limit of $196,000 if married or $133,000 if single. While you don’t receive a tax deduction for the contribution to a Roth IRA account, growth and distributions in retirement are tax-free.
  • Backdoor Roth IRAs: If your income is too high to qualify to make regular Roth IRA contributions, you can make a non-deductible Traditional IRA contribution, which is converted to a Roth IRA later. This is a tax-free conversion if you don’t have other pre-tax IRA assets, such as an existing balance in a Traditional IRA or rollover IRA (also SEP IRA and SIMPLE IRA). Annual contribution limits are $5,500, with an additional $1,000 catch-up contribution for individuals age 50 or older.

Here’s an article on the Merriman website about reporting a backdoor Roth IRA on your tax return.

At Merriman, our job is to help clients achieve their retirement savings goals. One tool for achieving that goal is reducing taxes along the way.

In light of the recent tax legislation, more tax-related posts are coming your way. Be sure to subscribe to receive our email newsletter, including a special tax edition coming next month.

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By Geoff Curran, Wealth Advisor CPA/ABV, CFA®, CFP®

Geoff has always enjoyed talking with people about finance, learning about their investments, financial strategy, and business sense. His interest only deepened with time, and what began as a hobby has now become a life-long passion, with an unparalleled passion for continuing education that makes him an expert in many subjects from traditional taxes and investments to business succession planning and executive compensation negotiations.

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