By Dejan Ilijevski
Tax efficiency is pivotal in enhancing your long-term investment outcomes. That’s why at SCM Investment Services we integrate Tax Planning as part of our comprehensive financial services. One of the easiest ways to improve your present tax situation is through regular contributions to retirement accounts, which serve as investments in your future self.
Each of the strategies below comes with its own set of rules and limitations, and I strongly recommend consulting with a tax professional to understand how these can specifically benefit your financial situation. Tax laws change, and staying informed is key to optimizing your benefits.
Let’s take a look at 5 tax-saving strategies for 2024.
Take Full Advantage of your Employer-Sponsored Retirement Plan Contributions
Making contributions to a 401(k) or 403(b) plan can significantly lower your taxable income. Your contributions are automatically deducted from your paycheck and won’t show up as part of your annual income. To add icing to the cake, many employers offer a matching percentage of your contribution, up to a certain limit.
For example, let’s say your salary is $100,000. A typical employer match might be 50% up to 5% of your salary. So if you’re able to contribute 10% of your salary (the 2024 limit is $23,000), your employer will contribute another 5% (50% of your 10%). That’s like getting a free $5,000 bonus ($100,000 x 5%) toward your retirement.
If you can’t contribute the highest amount allowed, try to contribute at least enough to get the full match from your employer.
Open or Contribute More to an Individual Retirement Account
An individual retirement account (IRA) is another fantastic tool for retirement savings. Depending on your income, your contributions can be fully or partially tax-deductible. For example, if you’re in a 22% tax bracket, and contribute $5,000 to a traditional IRA (the 2024 limit is $7,000), you could reduce your tax bill by $1,100 ($5,000 x 22%).
You have access to some great starter plans. Platforms like Vanguard or robo-advisors such as Betterment offer easy ways to start with as little as $10. Betterment happens to also construct its portfolios with Vanguard funds, which are low-cost and best-in-class.
Don’t forget the IRS’s Saver’s Credit program, which can add up to a $1,000 or $2,000 tax credit for eligible mid- to lower-income taxpayers.
Utilize Health Savings Accounts for Triple Tax Advantages
If you’re eligible for a health savings account (HSA), consider it for more than just a savings account for medical expenses. It’s also a smart way to save on taxes:
- The deductions are pre-tax, lowering your taxable income.
- The money is invested and grows tax-deferred.
- Withdrawals for qualified medical expenses are untaxed.
The truth is that for most of us, medical care will be the biggest part of our expenses in retirement. Taking advantage of this tax-efficient strategy to grow your wealth for retirement expenses is a wise move.
Harvest Investment Losses in Taxable Accounts
Using an investment loss to offset your tax liability is a great way to make the most of a losing situation.
Here’s how it works. The IRS allows investors to offset their capital gains with similar capital losses. For example, if you lost $2,000 on one investment but gained $2,000 on another, the loss offsets the gain, so your net taxable gain is zero.
Your investment loss can also be used elsewhere against gains to help reduce your tax bill.
Take Advantage of Educational Credits
If you have educational expenses, both the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are tax credits available to students to help offset the cost of higher-education expenses.
The American Opportunity Tax Credit offers up to 40% of the first $4,000 qualified expenses. It also includes an additional 25% of the next $2,000 of qualified expenses.
The Lifetime Learning Credit is another valuable tool that offers up to 20% of the first $10,000 in post-secondary education expenses.
Reach Out for Help!
In addition to the tax strategies outlined above, there are more complex tax benefits guidelines to consider. Whether you’re financially stable or just getting started, your best bet is to get professional fiduciary advice from a firm like SCM Investment Services. When you partner with us, you can trust that we’re putting your best interests first, always.
To schedule a complimentary introductory meeting or request a free financial health checkup, call (219) 225-1934 or email email@example.com.
Dejan Ilijevski is Financial Advisor, Investment Manager, and Founder of SCM Investment Services, an independent, fiduciary, fee-only financial advisory and investment management firm based in Munster, Indiana. With an evidence-based approach to investing grounded in economic theory and reliant on insights from financial science, he customizes globally diversified portfolios of mutual funds and ETFs for his clients. With 20 years of experience in the trading/financial services industry, and described as trustworthy and community-oriented, Dejan is passionate about helping individuals and families, prioritizing their best interest first and foremost.
Originally Dejan pursued a career in research and technology but was recruited by a startup trading firm at the Chicago Board of Trade. He took advantage of this rare opportunity, curious to learn more about capital markets. Dejan’s technical background provided a unique skill set, and by the end of his rookie year, he routinely transacted over $1 billion in U.S. Treasury notes daily, making him one of Chicago’s biggest bond traders. He consistently earned the highest profits for the firm for many years and continued to advance professionally in the trading arena.
With newfound experience and insight, Dejan came to realize his parents were being exploited by their financial advisor and that the financial services industry does not work in your best interest. After earning his MBA from the University of Chicago Booth School of Business, Dejan left the trading industry to start an independent financial advisory firm based on integrity and transparency and built on the belief that everyone deserves trusted, knowledgeable financial advice—blending Wall Street expertise with Main Street values.
Serving the broader community as an investor advocate, a proponent for financial literacy, and sponsoring nonprofit initiatives, Dejan is a trusted subject matter resource for many financial news media publications. He and his wife, Daniela, reside in Munster, Indiana, with their two kids. In his free time, he enjoys road cycling, reading, playing soccer, traveling, going on adventures (even skydiving!), and serving local charities. To learn more about Dejan, connect with him on LinkedIn.