Welcome to Your 2016 Tax Season - Qualified Account Contributions

Getting Started with this Important Piece of your Financial Puzzle…Once Again! 


Welcome to the beginning of a new tax season! While it may not be your favorite topic, taxes are an important aspect of our responsibility as citizens. Fulfilling that responsibility as prudently as possible is best accomplished by great teamwork among you, your Financial Advisor and your Tax Preparer.

As you participate in the annual scramble to pull together requisite data to provide to tax preparers (or yourself if you self-prepare), we are reaching out to provide a few guidelines regarding Qualified Account Contributions. As appropriate for your income and cash flow, contributing to some or multiple of these tax-deferred/free accounts can be an effective tax optimization and investment strategy.

Our general guidance, in priority order, is as follows:

  • Health Savings Account (HSA) contributions: If you meet the eligibility criteria, consider maximizing this “above the line” deduction by contributing before April 15th. You must be enrolled in a health insurance policy that is considered by the insurance company to qualify for an accompanying HSA account/contribution. There are distinct restrictions for partial year enrollment, so please seek tax counsel regarding your maximum contribution amount. There is no use-it-or-lose-it restriction on these accounts and they can accrue just like other IRAs if you don’t spend your contributions each year.
  • SEP-IRAs: If you meet the eligibility criteria, consider maximizing this “above the line” deduction. You have until the time of filing (with extensions) to make this contribution.
  • IRA Choices:
    • Direct Roth IRA Contribution:
      • If you meet the eligibility criteria and are in the 25% Marginal Ordinary Income Tax Bracket or lower, consider maximizing this contribution for each person eligible. There is no deduction for the Roth – you contribute after-tax dollars – however, the benefit comes on the “back side” of owning the account – all earnings are distributed tax free during your retirement years (and, of course, grow tax-deferred until then).
      • If children have reportable, earned income, they are eligible to make direct Roth contributions, regardless of parents’ tax bracket.
    • If you are not eligible for a Direct Roth IRA Contribution and are in the 28% Marginal Ordinary Income Tax Bracket or higher, you may consider maximizing your allowable Deductible, Traditional IRA Contribution. There are a number of rules and limitations associated with this possibility, so please consider tax counsel to see if this strategy is appropriate for your specific situation.
    • Next in priority is a Non-Deductible Traditional IRA Contribution. Despite the tax deferral on income earned, we typically don’t encourage these unless they are going to be followed by subsequent Roth IRA conversion(s), when any of the following apply:
      • The contributor doesn’t have a Traditional or SEP-IRA balance making the conversion tax-free.
      • The contributor does not expect to be in a lower Marginal Ordinary Income Tax Bracket in the future, and values having a portion of their portfolio in a tax-free account.
      • The contributor is optimizing the estate planning benefits of the Roth IRA, despite the tax cost on conversion.
      • Notify your Tax Preparer before (s)he begins your tax return preparation so that each Non-Deductible Traditional IRA Contribution is properly reflected via IRS Form 8606 to avoid paying tax on these dollars twice upon distribution.

While there are many other types of qualified accounts such as 401(k)s, 529s, Coverdells, SAR-SEPs, Simple IRAs, FSAs, etc., the account types discussed above are the most common and/or have deadlines associated with tax filings. This letter is not intended to be all-inclusive tax advice (that’s simply just not possible!), however, we hope it provides general guidance and direction. Please know that it should not be interpreted as individualized planning, investment or tax advice, and it is always recommended that you contact your tax preparer for advice specific to your situation.

Tax planning Calendar Look-Ahead:

  • 3/15/17 – Corporate tax returns due (C Corp, S Corp, LLC with S Corp Election)
  • 4/15/17 – Personal tax return due
    • Plus any amount owed unless an extension is filed.
    • Even if an extension is filed, a payment of your remaining 2016 tax liability is due.
    • 2016 IRA Contributions ($5,500/$6,500) due
    • 2017Q1 Estimated Tax Payment due for the period 1/1/17 through 3/31/17
  • 6/15/17 – 2017Q2 Estimated Tax Payment due for the period 4/1/17 through 5/31/17
  • 9/15/17 – 2017Q3 Estimated Tax Payment due for the period 6/1/17 through 8/31/17
  • 10/15/17
    • Personal tax return due (final) along with any additional payment
    • Last day to make 2016 SEP-IRA contribution

Happy filing!