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updated: 11/12/2020 11:18 AM

Are you missing out on these retirement and tax reduction opportunities?

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  • John Bever

    John Bever

 
By John W. Bever
Phase 3 Advisory Services LTD.

In all your effort to adapt to the COVID-19 environment to keep your business running, you may have neglected your personal long-range financial planning.

Take a few minutes to think about your long-range and retirement plans. Here are steps you can take before the end of the year to help secure your retirement and better manage your taxes.

Invest more in your 401(k) plan

Remember to increase your own regular contributions to your plan. If you have not maximized your own 2020 contributions, do that now. You can add an automatic contribution increase feature to your plan.

Invest more than $26,000

Did you know there are three types of employee contributions you can offer in your 401(k) plan? Even if you have maxed out your own traditional pretax and Roth contributions to your 401(k) plan you may want to include Voluntary After-Tax Contributions (VAC) in your 401(k) plan. These contributions are made after tax and in addition to your normal ($19,500) and catch-up ($6,500) contributions. Total plan contribution per employee for 2021 is estimated to be $57,500.

Your VAC account is available with no penalty for withdrawal at any age even before retirement. Because you contribute after tax you only pay tax on the gain upon withdrawal.

You can roll the gains to your IRA and the contributions to your Roth IRA even if you do not qualify to fund a Roth IRA. If you need a way to build more tax-free income in retirement VACs can be a powerful tool.

Start a retirement plan

The Illinois Secure Choice Act requires Illinois businesses with 25 or more employees to establish and fund a retirement plan.

Employers with 25-99 employees were to establish their own plan or enroll in Secure Choice by November 2019. It is now November 2020 and you must "facilitate the program as soon as you are reasonably able to do so," according to employer.ilsecurecoice.com.

Save an additional $7,200

You may be missing up to $7,200 in before tax deductions. That is the 2021 contribution limit for Health Savings Accounts (HSA). Make sure you offer a Health Savings Account option in your health insurance plan. There is no income limit or deferral testing to restrict your personal funding.

Contributions are made before tax and if funds are used for qualified medical expenses those withdrawals are tax-free. This is very powerful if you can't utilize the medial itemized deduction. Your balance rolls over each year and accumulates. You have full access to the funds at age 65.

Some HSA custodians offer mutual fund investment options. At age 55 you can contribute an extra $1,000 per eligible person.

Deduct taxes on your vacation home

Turn that second home into a tax deduction and income generator. Many vacationers are wary of staying in hotels and prefer smaller venues with less people. That vacation home you only use part of the year could be a new source of cash flow. If you personally use it only two weeks per year you may be able to treat it as a rental property and deduct depreciation along with expenses including that property tax deduction you lost due the $10,000 SALT limit.

Boost your own retirement plan

Run your retirement number now. You spend countless hours working on your business, be sure to carve out time to work on your personal financial plan.

Choose a financial planner who is knowledgeable about these issues. Look up a CFP® Professional at letsmakeaplan.org who can help you maximize these and other opportunities.

• John W. Bever, CFP, is president of Phase 3 Advisory Services, LTD.