• Malissa Marshall, CFP®

Do Not Go Gently 🕯

Updated: Mar 29


As we wend our myriad ways through this holiday season, our days grow inexorably shorter, and both light and time - key markers of spaciousness - become ever more precious. We push back by lighting candles, stringing holiday lights, taking deeper breaths. In this period of darkness and light, reflection and celebration, our focus is on our loved ones and our gratitude for all that we have. May it be so. And while it is unlikely that tax planning is high on your priority list, perhaps some questions arise in a moment of quiet reflection, so I would like to share some final thoughts as the year closes and the opportunities for planning slowly fade away.


Confidence

Last month I outlined some basic, concrete steps you could take to understand and minimize your tax liability to improve your short-term results come April 15th. But tax returns aside, you have other options to consider if you take a few more moments to examine your long-term goals - and being proactive in this way can give you more confidence in your ability to achieve your dreams. Below are several more options, and, moreover, each of them also reduces your tax liability, further increasing your likelihood of success.

1. Medium-Term Goal: Saving for College This is a great example of financial and tax planning supporting one another: using a college savings plan as a vehicle to save toward college expenses allows for long-term, tax-free growth, and occasionally provides immediate tax benefits. While there is no Federal tax deduction for contributions, many states offer either a deduction or credit for contributing to your home state plan. For example, Vermont offers the Vermont Higher Education Investment Plan which offers a 10% credit for contributions up to $2,500 per beneficiary per year. That’s an incredible return, and - combined with annual contributions over multiple years - it's a great choice for saving for your children (or grandchildren). 2. Long-Term Goal: Saving for Retirement There are a multitude of savings vehicles for retirement, which offer tax-deferred (IRA, 401(k), 403(b), SEP, SIMPLE, etc.) or even tax-free benefits (HSA and Roth options). Depending on your financial situation, you should be saving in the range of 10-20% of your income toward retirement - how much are you saving? You can generally contribute to tax-deferred accounts on a pre-tax basis, meaning a $600 monthly contribution will only “cost” you less than $400 if you pay 35% combined Federal and state taxes. The downside is that withdrawals upon retirement will be subject to tax as ordinary income, whereas distributions from Roths and HSAs are generally tax free. Whichever option is best for you, the important point is to focus on saving early and often. 3. Enduring Values: Charitable Contributions Since the new tax laws went into effect last year, most people no longer itemize deductions on their tax returns, so they may not receive a Federal tax deduction for contributing to charities. However, you may be able to bunch multiple years of donations into a single year to qualify, for example by setting up a Donor-Advised Fund. But even if you don't meet the threshold to itemize, for those of us in Vermont, there is a new 5% tax credit for contributions up to $20,000 per year. Regardless of the tax consequences, in these months which begin with the ghosts of Halloween, bridge multiple holidays which provide opportunities to practice gratitude, and end with celebrations of the New Year, we should all consider placing our values into action by donating our time, energy, and resources toward the organizations which support our communities.

If you are interested in year-end planning and better understanding how these various choices fit into your overall financial picture, check out my website for additional details about how we might be able to work together, or - if you are ready - go ahead and sign up for a free initial consultation. Otherwise, I’d be happy to hear from you if you have any questions you'd like me to address, if you have any feedback you'd like to share, or if you just want to say hello!

PS. Please understand that this information is offered for educational purposes only, and that you should speak with a qualified professional about your particular circumstances before making any tax or investment decisions.


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