The Sizemore Investment Letter’s Charles Sizemore gave his thoughts on end-of-year tax planning to Fox Business writer Sheryl Nance-Nash:
With Thanksgiving still three weeks away, taxes are probably the last thing on your mind. Still, much as you might groan at the thought, there are some smart steps you can take between now and Dec. 31 that will make a real difference when it comes time to deal with the IRS next spring. In part one of this two-part report, we offer four moves that could benefit your bottom line on April 15.
If you have enough in cash savings set aside for emergencies and your monthly budget allows for it, consider upping your 401(k) contribution. You’re allowed to contribute up to $16,500 of your earnings tax free (in addition to any company matching), and that limit gets bumped to $22,000 if you’re over 50. If you don’t have a 401(k) at work, consider setting up an IRA or Roth IRA, recommends Charles Sizemore, editor of the Sizemore Investment Letter. If you’re self-employed and have the cash flow to allow it, you can shelter as much as $49,000 per year in a SEP-IRA.
The more money you put into these retirement funds, the less you pay in taxes now — and the more you earn for golden years. Taxes are like sandpaper that grinds down your returns over time, says Sizemore: Every dollar you pay in taxes today is a dollar that can’t be invested for growth. There are also secondary benefits, such as protection from creditors. In most cases, assets held in a 401(k) or IRA are safe from creditors’ claims.
