3 Ways to Stay Tax-Smart in 2014

Implementing these tax-smart strategies can save you a bundle of money.

Feb 22, 2014 at 12:00PM

If you're like most people, you probably wait until this time of year to think about taxes. But by implementing tax-smart investing strategies year-round, you can potentially save a bundle of money. Consider these three strategies.

Tax Article Image

1. Fund your IRA fully and early
Traditional IRAs are tax-deferred retirement accounts that offer immediate tax savings. Individuals can contribute and fully deduct up to $5,500 for the 2013 tax-filing year ($6,500 for savers age 50-plus). Your tax deduction may be limited if you (or your spouse, if you're married) participate in a retirement plan at work and your income exceeds certain levels. Fellow Foolish writer Chuck Saletta recently detailed IRA deductibility here. 

Investors have until the tax-filing deadline to make a contribution for the prior calendar year. While many folks delay funding their IRAs until March or April, waiting until the deadline can cost you up to 15 months of tax-deferred growth. That might not seem like a significant amount of time, but it could considerably impact your retirement savings over the long term.

2. Contribute or gift to a 529 college savings plan for your kids or grandkids
Earnings in a 529 college-savings plan accumulate tax-free. Distributions used for qualified higher-education expenses (tuition, room and board, books, laptop computer, etc.) are free from federal income tax. In addition to the federal treatment, your own state may also offer some tax breaks, like an income exemption on withdrawals. 

Contributions may also be immediately eligible for a state income-tax deduction or credit. In fact, 34 states and the District of Colombia offer a tax deduction for 529 college-savings plan contributions. For example, residents of Indiana receive a 20% tax credit on up to a $5,000 contribution for a maximum yearly credit of $1,000. 

You can find out if your state sponsors a similar plan here. Keep in mind that 529 plan withdrawals used for expenses other than qualified education may be subject to taxes and a 10% penalty.

3. Consider municipal bonds
Invest in tax-free municipal bonds to take your tax savings to the next level. Income from municipal bonds is free from federal taxes. For extra tax savings, buy a muni bond issued in your state of residence. That way you'll also be exempt from paying state income taxes on the interest income. Even better, local municipal bonds and those issued in Puerto Rico are triple-tax-exempt, meaning you'll avoid federal, state, and local taxes.

Before investing in muni bonds, be aware that if you receive Social Security income or are subject to the alternative minimum tax, your muni income may not be entirely tax-free after all.

Foolish bottom line
Become a more tax-savvy investor this year. By implementing these strategies, you can keep more of what you earn in 2014 and beyond.

Is Uncle Sam about to claim 40% of your hard-earned assets? 
Thanks to a 2013 law called the American Taxpayer Relief Act, he can -- and will -- if you aren't properly prepared.

Fortunately, The Motley Fool recently uncovered an arsenal of little-known loopholes to protect yourself from ATRA and help keep the taxman at bay when he inevitably comes calling. We reveal them all in a brand-new special report. Simply click the link below for instant, 100% FREE access. Protect your hard-earned wealth from Uncle Sam.

Follow Nicole Seghetti on Twitter @NicoleSeghetti. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers