Tax Planning 101: Retirement And Educational Savings

Interested in tax planning to save money? You’ve come to the right place. Here are several options to consider to increase your retirement savings and lower your tax liability:


Pre-tax IRA, aka Traditional IRA

A pre-tax IRA is one of the most commonly used ways to save for retirement while benefitting from tax advantages. Contributions are fully or partially deductible, and earnings and gains aren’t taxed until they’re actually distributed.

After-tax IRA, aka Non-Deductible IRA

An after-tax IRA is a traditional IRA with nondeductible contributions. When a retiree takes a distribution, the nondeductible portion of the contribution is tax-free. However, any income and earnings created from that after-tax contribution are taxable. There is a 10% early distribution penalty for individuals under the age of 59.5.

Roth IRA, aka Roth IRA

A Roth IRA is an improved after-tax IRA.  Although there are no tax deductions for contributions, all distributions come out tax-free. One can withdraw contributions any time, but must be 59 1/2 years old and you must have had a Roth IRA open for at least five tax years before one can withdraw income and gains without tax or penalty.

Employer Retirement Plan

Business owners can establish employer retirement plans that qualify for many tax benefits. A sole proprietor may be eligible to contribute up to $60,000 to a solo 401(k) plan. Contributions of a business with full-time employees may be more restricted due to the cost of providing profit sharing contributions to employees.

529 Plan

A 529 Plan can help families set aside funds for expected college costs. Earnings are subject to neither federal nor state tax when used for tuition, fees, books, and room and board. There is no immediate tax deduction, but contributions and earnings will still grow without tax over time.

HSA Triple Tax Benefit

Individuals covered by a High Deductible Health Plan (HDHP) can set aside tax-free funds to minimize out-of-pocket medical expenses. Contributions go into an account tax-free, grow tax-free, and are distributed tax-free when used for eligible medical expenses.

Cohen & Burnett offers tax planning, estate planning, fiduciary management, retirement planning, and tax preparation in and around Washington, D.C. All of our services are delivered by experienced, trusted legal professionals. To learn more, please visit our homepage today.




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