How to Pay Less Taxes in 2018: Tax Loss Harvesting, 529 Plans, and 401k Contributions

TL;DR

Take advantage of various strategies such as contributing to retirement accounts, utilizing 529 plans, bunching charitable contributions, donating appreciated stock, managing required minimum distributions, and considering tax-loss or gain harvesting to lower your taxes before the end of the year.

Transcript

Robert Brokamp: Let's talk a little bit about what you can do before the end of the year. Here are some things you can do to hopefully lower your taxes by December 31st. I'm just going to tick off a few of these. Probably you're familiar with some of them. Contribute to a traditional 401(k) or a similar employer-sponsored plan you have until the fo... Read More

Key Insights

• ❤️‍🩹 Take advantage of retirement savings tax benefits by contributing to a traditional 401(k) or similar plan by the end of the year.
• 👨‍🏫 Utilize a 529 plan for education expenses, with expanded usage for elementary and secondary school expenses.
• ✋ Bunching charitable contributions in a single year can maximize deductions and leverage the higher standard deduction in the next year.
• 🧚 Donating appreciated stock to charities can provide a deduction for the fair market value while avoiding capital gains taxes.
• 😵‍💫 Consider RMDs from traditional retirement accounts, including separate RMDs for individual IRAs and 401(k)s.
• ❤️‍🩹 Be cautious of purchasing actively managed mutual funds outside of retirement accounts at year-end to avoid unexpected capital gains taxes.
• 🌸 Tax-loss harvesting can be beneficial for offsetting gains or ordinary income up to $3,000, but take note of the wash-sale rule and potential limitations.

Questions & Answers

Q: What are some strategies to lower taxes before the end of the year?

Consider contributing to a traditional 401(k) or similar retirement plan, utilizing a 529 plan for education expenses, bunching charitable contributions, and donating appreciated stock to charities.

Q: How can bunching charitable contributions help with tax planning?

By combining charitable contributions in one year and skipping contributions in alternate years, individuals can maximize deductions by utilizing the higher standard deduction in one year and leverage the use of charitable deductions in the next.

Q: Is it beneficial to donate appreciated stock instead of selling it?

Donating appreciated stock allows individuals to avoid capital gains taxes while still receiving a deduction for the fair market value of the stock. Using a donate-and-replace strategy can help maintain stock holdings.

Q: What should be considered regarding required minimum distributions (RMDs)?

Individuals should be aware of RMDs from traditional retirement accounts by age 70 and a half. RMDs may need to be taken from individual IRAs and 401(k)s separately, with potential implications for Roth 401(k)s.

Summary & Key Takeaways

• Contribute to a traditional 401(k) or similar plan by December 31st to lower taxable income and take advantage of the retirement savings tax benefits.

• Utilize a 529 plan for qualified education expenses, with expanded usage for elementary and secondary school expenses.

• Consider lumping or bunching charitable contributions in a single year to maximize deductions and take advantage of the higher standard deduction in alternate years.

• Donate appreciated stock to charities to avoid capital gains taxes and receive a deduction for the fair market value of the stock.