If you are getting subsidized health insurance through the Federal health insurance exchange then you likely can receive more subsidy due to a recent law change. In the past, you could receive NO subsidy if your income exceeded 400% of the Federal Poverty Level. Now, there is no bright-line phaseout and you will always receive a subsidy to keep you from paying more than 8.5% of your income towards health insurance. If you need any clarification on how this impacts your tax return then please call us.
If you have to get your hands on IRA or 401K money before age 59 ½, then usually you have to pay a 10% penalty. You might be able to avoid this penalty if your withdrawal is to pay for large medical bills, college expenses, the birth or adoption of a child, a first-time home purchase (withdrawal limited to $10K), or is related to a disability. Furthermore, some of these exceptions only apply to IRA withdrawals. For example, if you are purchasing your first home, a $10K withdrawal from your 401K to fund it will be subject to a 10% penalty, but a $10K withdrawal from an IRA won’t be. Solution: Roll $10K of funds from your 401K to your IRA, and then withdraw the funds from the IRA to help with your house down payment.
If you have a child in college or private K-12 school, then take advantage of the 20% Indiana College Choice 529 credit on your Indiana tax return. The credit is 20% of your annual contribution with a max annual credit of $1K in 2022 and $1.5K in 2023. You don’t need to pay funds directly from the 529 to the school. If you would rather pay for school expenses from your personal account, then contribute funds to the 529 to get the credit and then transfer those funds back to your personal account as a reimbursement. To take advantage of this, the funds need to be deposited into the 529 by 12/31 of the year for which you want the credit.
If you are over age 72 then you are forced to withdrawal money from your Traditional IRA each year and include that amount in your taxable income. Most retirees don’t itemize since their itemized deductions (state and local taxes, mortgage interest, and donations) don’t exceed the $28,700 standard deduction – thus their donations don’t save them any tax. The solution: If you donate to charity directly from your IRA, then you don’t have to include that donated amount as income on your tax return…so in a round-about way, you get to deduct that donation (i.e., your taxable income doesn’t include the amount you donated to charity directly from your IRA). Even though the required minimum distribution age is 72, you can start using this strategy when you reach age 70.5.
If you have a high-deductible health insurance plan that covers your family and you have a child on that health plan who is under age 26 and not a dependent (thus, the child is likely age 22-25), then you can contribute the family maximum to your own HSA and since that non-dependent child (likely aged 22-25) is also on a family high-deductible health insurance plan, that child can contribute $7,300 to their own HSA account.