Tax Planning

It’s More Than What You Earn. It’s What You Keep

March 01, 2022

As you work with your accountant to prepare your tax return, you may be wondering if you’re doing what you can to minimize your tax burden.

Below are some of the strategies your Washington Trust Wealth Advisor considers when creating your tax-aware investment plan, which may include recommendations to:

  • Maximize your retirement savings. To reduce your current tax burden, you can contribute as much as you can into a tax-deferred account, such as a 401(k), especially if you have an employer that will match a portion of your contribution. In the calendar year that you turn 50, you can begin adding catch-up contributions as well. Depending upon your modified adjusted gross income, you may also be eligible to contribute to an IRA, and the deadline for a 2021 contribution is April 18th of this year. (Depending on your current tax bracket or need / desire for tax-free income in retirement, allocating some or all of your retirement contributions to a Roth 401(k) or Roth IRA may make sense.)
  • Contribute to a college savings plan. If you put money into a 529 plan for a child or grandchild, niece, nephew or other loved one you’d like to provide for, your contributions may be state income tax-deductible (if you contribute to your state’s plan). Note that grandparents are allowed to front-load their contributions to make a 5-year gift of up to $32,000 per year per beneficiary (for a married couple), or $160,000 total.1 However, if you front load contributions, you cannot make additional 529 contributions for that beneficiary in the following 4 years, and any other gifts to that beneficiary in the following 4 years must be reported as taxable gifts.
  • Take advantage of the triple-tax benefits of a Health Savings Account (HSA). Deposits into an HSA, available only to those with a high-deductible health plan, are made with pre-tax dollars, and interest earned is not taxable, nor are withdrawals for qualified expenses. In 2022, you can contribute up to $7,200 for a family and $3,600 for self-only coverage, with $1,000 in catch-up contributions allowed for those aged 55 and older.2 And many plans offer the option to invest these funds for use in later years.

Your Washington Trust Advisor also takes into account these tax considerations in managing your portfolio:

  • Investing for the long-term. When you sell your investments, you may have to pay taxes on your realized gains. You are taxed at the short-term capital gains rate for investments held less than one year (which is the same as your ordinary income tax rate, 37% for the highest tax bracket). The capital gains rate, which is 20% for high earners, applies to investments held one year or longer.
  • Harvesting tax losses. If you have capital losses, you may be able to use them to offset your gains through ‘tax-loss harvesting.’ However, the IRS does not allow you to buy back an equivalent investment within 30 days before or after the transaction under its ‘Wash Sale Rule.’

Your Washington Trust Wealth team works with you to create a tax-aware financial and investment plan based upon your situation and goals. Please reach out to your advisor if you have any questions about strategies that can help you keep more of what you earn.

Please note:

The IRS does not contact taxpayers by email.

If you get a text or email with a link that appears to be coming from the IRS, do not click on the link. The IRS does not contact taxpayers by email, text or social media with requests for financial information.

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This document is intended as a broad overview of some of the services provided to certain types of Washington Trust Wealth Management clients. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting, actuarial or tax advice. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, an attorney or tax professional regarding your specific financial, legal or tax situation. No recommendation or advice is being given in this presentation as to whether any investment or fund is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were, or will be, profitable.

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