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Not many people know this about me but stemming from my undergraduate math major, I’ve truly become a big personal finance and tax law nerd. You’ll usually find me listening to a finance podcast during my car rides and reading about investing. Yes, I am that thrilling. With a new infrastructure bill possibly coming our way, one thing that will most certainly come with it is increased taxes! Probable increased ordinary income tax, increased capital gains tax, and removal of the step-up basis upon death, making this the perfect time to make sure we are saving and investing correctly.

401k & Profit sharing - These are a great way to save on taxes and save for retirement. Your contributions are deducted from your taxable income and only taxed when you make withdrawals. If you are an employee, it is even more important to participate in your company’s 401k if your office matches a portion of your contribution (match = free money). You have a maximum 2021 employee contribution of $19,500 ($26,000 for 50+). If you are an owner/employee, you may be able to save even more from the tax man by utilizing a 401k/profit sharing, this allows for a maximum 2021 contribution of $58,000 ($64,500 for 50 or older).

Health Savings Account (HSA) - Triple tax benefits! Possibly one of the best tax advantages the government has ever allowed. Contributions are made tax free, grow tax free (you can invest it) and then are spent tax free on eligible medical expenses. Maximum contribution for 2021 is $3,650 for an individual and $7,200 for a family (add $1,000 for 55+). As a bonus, if you “over save”, you can withdraw on it the same as you would a 401k at age 65.

529 Plans - A great way to save for K-12 or post-secondary education. Your contribution is made after taxes, but then grows tax free and is spent tax free on eligible expenses. You own the account and select the beneficiary. You can change the beneficiary as needed to other children, grandchildren or even that weird cousin. As a bonus, you can “superfund” these allowing you to make 5 years of contributions ($75,000 per individual) at once and still qualify for the annual gift tax exclusion.

Roth IRA & Backdoor Roth IRA - Roth IRAs allow after tax contributions of $6,000 ($7,000 for 50+) that grow and are withdrawn tax free. Direct funding of a Roth IRA is phased out at an adjusted gross income of $140,000 ($208,000 for married filing jointly). The good news is the government has allowed a backdoor Roth IRA. Start by making an after-tax contribution to a Traditional IRA and the next day you can roll it over into a Roth IRA. This gives you the same tax advantages as a Roth IRA.

Qualified Opportunity Zones - The 2017 Tax Cut and Jobs Act created this gem. It is a little bit more abstract but is great if you are interested in private equity investing. First, you invest capital gains (from the sale of a stock, bond, property, etc.) into an Opportunity Zone. Then, you are able to defer taxes due on the capital gains until 2026, get a reduction on the deferred taxes and pay NO taxes on new capital gains created from the investment.

Although I did stay at a Holiday Inn Express last night, I am no expert and would still recommend discussing these ideas with your accountant and/or financial advisor prior to using them. Have a great day!

Dr. Jesse Jukobowski