Look at 529 Plans, FSAs, and Retirement Accounts if You Have Extra Income
Our weekly newsletter will cover various tax saving strategies. But, the name of the game is to syphon-off pre-tax income to a variety of other sources, to reduce or defer your tax liability. Once your income reaches a certain level where the pro rata tax on each additional dollar of income begins to cost you, you need to start considering options for reducing your overall tax liability.
Got kids? Odds are they will be going to school eventually. And your contributions to their college savings accounts are tax free. The first $15,000 you contribute qualifies for the annual exclusion. And that goes for each spouse. So, a total of $30,000 can be contributed to a 529 plan tax free before you have to file a Form 709 gift tax return and some very high levels of gift tax. 529 plans have no annual contribution limits, but certain plans have limits queued to the total expected cost of tuition and attendant expenses. You get a break on state taxes as well. New York currently allows a $10,000 tax deduction per couple against state taxes. New Jersey sadly doesn’t give a state tax break for 529 plans.
This week’s newsletter featured an article on Health Savings Accounts, but another great option we will touch on in future weeks is a Flexible Savings Account (“FSA”). We will also further discuss the different kinds of retirement accounts and retirement savings strategies and their respective tax pros and cons in future newsletter and blog posts.
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