3 smart tax strategies that can help you year-round

Strengthen your financial planning by reviewing your tax efficiency.
 
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Ensuring you make the most of tax efficient strategies is an important but often overlooked core component of your financial planning.
 
“Income tax efficiency is an important component of your long-term financial plan, as it may lead to improved cash flow over time,” says Tamara Telesko, Director, Wealth Planning Strategies with TIAA. “Having an improved cash flow can mean having more dollars saved and available for your retirement years. As your life changes, consider whether your current tax strategy still works or whether adjustments would help manage your tax situation going forward.”
 
Analyzing—and potentially updating—your financial plan to account for new tax law changes and your evolving finances may greatly help your financial position down the road. Whether you’ve already filed your taxes this year or are in the middle of tax preparation, here are three long-term tax strategies you should consider discussing with your financial and tax advisors:
 
  • Reduce your taxable income while saving for retirement
  • Review how different types of accounts impact your tax liability
  • Take a fresh look at itemizing your deductions
 

1. Reduce your taxable income while saving for retirement

Some of the most common investing and saving decisions, such as contributing to a workplace retirement plan, may result in a reduction in your taxable income. That’s true whether you’re taking the standard deduction or itemizing deductions on your return.
 
“For most, making pretax contributions in tax-deferred workplace plans and IRAs can substantially increase the amount of retirement assets you accumulate,” Telesko says. “That’s because, for many people, you postpone paying federal and state (if applicable) tax on the initial contribution. And the interest, dividends and capital gains generated also accumulate on a tax-deferred basis.” 
 
Contributions to a traditional IRA may be deductible, depending on your income level and whether you or your spouse were eligible to contribute to a retirement plan at work. If you didn’t qualify in previous years, it’s still important to check every year. Your changing income tax situation may impact your eligibility.
 
While contributions to Roth IRAs, Roth 401(k)s and Roth 403(b)s do not reduce your taxable income, withdrawals in retirement are tax free. With the current lower individual income tax rates potentially expiring after 2025, you may find that your tax rate is lower now than it will be in the future—meaning that tax-free income from your Roth account will benefit you down the road.
 
Your advisor can help you decide on the best approach and then include it in your plan.

What can you contribute in 2020?

Contribution and income limits have changed for popular retirement accounts.

2. Review how different types of accounts impact your tax liability

Over time, it’s common to accumulate several financial accounts with various companies. If you don’t have a coordinated plan for all your accounts, it could affect how much tax you pay and undermine your efforts to achieve your financial goals.
 
“For investors who hold a variety of assets in numerous accounts, having your advisor perform an asset location review—making sure you have certain assets in the right types of accounts—can help minimize taxes now and in the future,” says Karen Filler, Senior Wealth Management Advisor with TIAA.
 
For example, an asset location review can help you make a purposeful decision about where to put your money after you’ve maxed out your tax-deferred contributions. Some options may include life insurance, guaranteed lifetime income options or long-term bank savings accounts like CDs. Your financial advisor can help you make these choices.
 

3. Take a fresh look at itemizing your deductions

Recent tax reform increased the standard deduction and limited certain types of itemized deductions. These changes are expected to dramatically decrease the number of filers who will itemize their deductions. However, you may choose to make additional deductible expenditures to the point where itemizing results in a tax benefit.
 
For example, increasing your charitable giving amount can push your deductions past the standard deduction threshold. One smart way to do this is to donate assets that have been held one year or longer and have appreciated over that time. Gifting them to a nonprofit may provide multiple benefits, such as not having to pay capital gains taxes on their increased value and being able to deduct their full current market value.
 
Another way to do this is through a donor-advised fund. A donor-advised fund is a charitable investment account that you can set up easily. Donor-advised funds make it possible to contribute assets (and possibly deduct a sizable amount) in the current year without needing to give away those assets to your charitable causes of choice until sometime in the future. Your advisor can help you find the best strategy to fulfill your charitable wishes while also keeping an eye on being tax efficient.
 

Charitable giving can help increase your itemized deductions

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It’s a good time to think about the big picture

As you’re reviewing your tax strategy, don’t stop at tax efficiency. Now is a prime opportunity to revisit your financial plan. You may find that recent market activity has changed your asset allocation or your preparedness for retirement. You may also be wondering whether your overall portfolio is designed to weather the ups and downs of market fluctuations.
 
If you’re having trouble getting a complete picture of your finances, it may be worth  consolidating accounts. It might be more efficient to have your retirement accounts in one place, for example. It may also help your advisor better understand your big picture, making it easier for them to assess your full portfolio. They can then help you align it to your risk tolerance and find the right asset mix to pursue your goals.
 
A TIAA advisor can help make sure your financial plan takes all your personal needs, wants and wishes into account—whether it’s understanding what your current and future expenses will be, saving for a child’s or grandchild’s college tuition or finding out how to leave the most amount of money to your loved ones.
 

Want to learn more?

Our IRA Selector Tool can help you find out which type of IRA could be best for your financial plan. For a deeper dive, our Quick Tax Reference Guide explains contribution and deduction limits, and whether you qualify. Once you decide which kind of IRA may be best for you, an advisor can work with you to include it in your plan and make adjustments as your situation evolves.
 
Ready to take the next step? Learn how a dedicated financial advisor and team of specialists from TIAA Individual Advisory Services can work closely with you as your life and goals change.
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1Income is limited to $290,000 per year when calculating employer match.
2Traditional IRA limits apply to clients covered by and contributing to a workplace retirement plan.
3Maximum contributions are reduced starting at $66,000 (single) or $105,000 (married filing jointly).
4Maximum contributions are reduced starting at $125,000 (single) or $198,000 (married filing jointly).
5Before consolidating assets, be sure to carefully consider the benefits of both the existing and new product. There will likely be differences in features, costs, surrender charges, services, company strength and other important aspects. There may also be tax consequences or other penalties associated with the transfer of assets. Indirect transfers may be subject to taxation and penalties. Speak with a TIAA consultant and your tax advisor regarding your situation.
The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor.
This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
Advisory services provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services®, LLC, a registered investment adviser.
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