2019 Planning Ideas - 3
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Retirement plan accounts
Consider the tax benefits of retirement plan strategies:
• In 2018, you can defer $18,500 ($24,400 if you’re age 50 or older) of your compensation by the calendar year-end deadline for many employer-sponsored retirement plan accounts.
• Consider your current and future tax rates, evaluate whether contributions to a Traditional 401(k) or Roth 401(k), if available, will provide more tax benefits.
• If available, consider starting or increasing contributions to your employer’s nonqualified deferred compensation (NQDC) plan.
• Evaluate converting a Traditional IRA to a Roth IRA.
• With the passing of the Tax Cuts and Jobs Ac of 2017, amounts converted in 2018 or later are irrevocable. You no longer have the ability to Re- characterize (undo) a Roth conversion. The last day to re-characterize a 2017 conversion is/was October 15, 2018.
• If you are working but do not have access to an employer plan, talk with your financial advisor about your IRA contribution options. If self-employed, consider setting up a retirement plan to help reduce your taxable income.
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Education savings
Save on taxes while saving for education:
• Contributions to Education savings Accounts (ESAs) or 52 plan accounts can grow tax-deferred.
• 529 plan contributions must be invested with the vendor in time to be reportable on a 2018 account statement to be considered a 2018 contribution for gifting purposes. A limited number of states allow contributions through the Tax filing deadline to claim or prior year state tax deduction.
• ESA contributions for 2018 can be made up to April 15, 2018custo
• 529 or ESA distributions must occur in the same tax year as the payment of qualified education expenses to be eligible for tax-free treatment.
• Qualified expenses for 529 plan purposes now include up to $10,000 per year per beneficiary for tuition for grades K-12.
• For students attending college in the 2019-2020 school year, the financial aid application period opens October 1, 2018. Note this date since early applications typically receive better financial aid offers.
• If your planning to make some changes to your child’s income and talk with your tax advisor to understand the impact of the new “kiddie tax” rules.
Understanding the ABLE account
ABLE accounts are tax-advantaged savings accounts for individuals with disability must have occurred before turning age 26). Any person, family member, or friend may contribute to the account, and balances have the potential to grow tax-deferred. In 2018, total contributions up to $15,000 plus a limited amount of earned income are allowed; contributions are not federally tax-deductible, but some states may allow a state income tax deduction. Balances in 529 college saving plans may now be rolled to an ABLE account up to the annual contribution limit. Also, beginning in 2019, these contributions are eligible for a limited tax credit.
As long as withdrawals are used to pay qualified disability expenses, withdrawals are tax free. Most importantly, ABLE account balances do not affect eligibility for Medicaid benefits (Note: Medicaid pay-back rules may apply upon the beneficiary’s demise.) Account balances greater than $100,000 and distributions for housing costs may affect eligibility for SSI benefits.
If you have a family member who may be eligible for ABLE account contributions, talk with your tax and legal advisors to determine if this type of account is suitable for your situation.
Benefits savings accounts
Take advantage of employer-provided tax-advantaged benefit programs:
• Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) typically require annual re-enrolment.
• Review 2018, out –of-pocket expenses and adjust 2019 contribution amounts accordingly.
• If you have not fully funded your HSA in 2018, you may still be able to do so. Talk with your health plan administrator about eligibility to make additional contributions.
• Generally, FSA funds must be used within the same plan year unless your employer offers a grace period or carryover. If you find yourself with FSA funds near year-end and do not anticipate needing them, see IRS publication 502 for permitted medical expenses, such as first aid kits, bandage, contact lenses and solutions, etc. You may find some qualifying expenses that will help you use up the remaining FSA dollars. Discuss your situation with your tax advisor prior to taking FSA distributions.
(Continued next week)
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)
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