All pieces of a financial puzzle go together - savings, taxes, income….

I had a new client engage our services, and we did an analysis of their taxes/retirement savings. There were a lot of observations, but the one that stuck out to me was blending their retirement contributions.

Here’s the situation: The husband is a doctor whose MAGI is $249,000 (they cannot contribute to Roth in the traditional manner), and he is currently max funding his employer plan’s salary deferral in the Roth bucket. The wife's job is taking care of the kids (much harder, in my opinion).

Not a bad plan. $23,000ish into a tax-free bucket every year. But we can make some tweaks.

Of course, one option would be doing a back-door Roth Contribution. This would get them $37,500 tax-free in 2025.

Instead, here is what we did:

1. Contribute $14,000 into the pretax bucket through salary deferral.
2. Contribute the remaining $9,500 to the Roth bucket through salary deferral to reach the maximum of $23,500 for 2025.
3. Contribute $7,000 into a Roth IRA for him and $7,000 into a Roth IRA for his wife.

Results:

Contributing $14,000 into the pretax bucket now allows for the following:

1️⃣ Diversify your tax allocation. These clients give $20k+ per year and will continue to give throughout their lives. The pretax account will either be used for future Roth Conversions or QCDs after 70.5.
2️⃣ This also reduced their MAGI to $235,000, which is below the Roth IRA phase-out in 2025
3️⃣ Additionally, the deduction in the contribution reduced their total Fed & State tax by around $4,000

So this year, they will contribute $23,500 into the tax-free bucket, contribute $14,000 into the pretax bucket (earmarked for future giving, most likely), and reduce their total tax by over $4,000.

The key to planning is blending retirement plan contributions and asset location to achieve goals throughout entire lifetimes.

Background:
A client, Sarah, started a new job this year and became eligible for a high-deductible health plan (HDHP), giving her access to a Health Savings Account (HSA). She wasn’t sure how to use the account or whether it was worth contributing.

What We Did:
We explained the triple tax benefits of an HSA:

1. Pretax contributions reduce taxable income.

2. Tax-free growth allows unused funds to grow like an investment account.

3. Tax-free withdrawals for qualified medical expenses now or in the future.

Sarah decided to contribute the maximum for 2024: $4,150 ($7,750 for a family, plus $1,000 catch-up if over 55). She set up monthly contributions through her paycheck to hit the limit by year-end.

Results:

• Sarah reduced her taxable income by $4,150.

• She invested her HSA balance, allowing it to grow for future healthcare expenses or retirement.

• She gained a flexible tool for managing current and future medical costs.

Takeaway:
If you’re eligible for an HSA, funding it is one of the most tax-efficient moves you can make. Use it as a medical expense account or an additional retirement vehicle.

Background:

Our client, Michael, a 45-year-old business owner, experienced a lower-than-expected income year due to delays in receiving payments from clients. As a result, his taxable income for 2024 was significantly reduced. He wanted to explore strategies to take advantage of his lower tax bracket while planning for retirement.

What We Did:

• Analyzed Michael’s Tax Bracket: Reviewed his projected income for 2024 and identified that he was in the 22% tax bracket, with room to convert additional income without moving into a higher bracket.

• Explained Roth Conversion Benefits:

  • Future withdrawals from Roth IRAs are tax-free, offering a hedge against rising tax rates.

  • Converting during a lower-income year minimizes tax costs.

  • It diversifies Michael’s retirement savings by adding a tax-free account alongside his pretax accounts.

• Executed a Market-Timing Conversion:

  • Recommended converting $50,000 from his traditional IRA to a Roth IRA.

  • Chose investments within his IRA that had temporarily declined in value, reducing the tax burden on the conversion and allowing future growth to occur tax-free in the Roth account.

• Projected End-of-Year Market Impact: With market volatility expected to stabilize, the timing of the conversion maximized Michael's future tax-free growth.

Results:

• Optimized Tax Strategy: Michael converted $50,000 while staying within his current tax bracket, paying a reduced tax cost compared to converting in a higher-income year.

• Enhanced Retirement Flexibility: He now has a tax-free bucket in his retirement portfolio, which allows him to manage future tax liabilities strategically.

• Market Recovery Potential: Investments converted at a lower value have already begun to recover, amplifying the tax-free growth in his Roth IRA.

Takeaway:

Year-end market timing Roth conversions can be a powerful tax planning tool, especially during lower-income years or when market volatility creates opportunities. If you’re considering strategies to maximize your retirement savings, a Roth conversion can provide long-term tax benefits and greater financial flexibility.

Background
Our client, Michael, a 45-year-old business owner, recently sold his business for a substantial gain in 2024. As part of his broader financial goals, he wanted to preserve his family’s cherished 50-acre property while reducing his tax liability from the sale. Michael was interested in exploring conservation strategies that aligned with his personal values and financial objectives.

What We Did

1.Analyzed Michael’s Tax Situation:

• Reviewed the tax implications of his business sale, which placed him in the highest income tax bracket for 2024.

• Identified the potential to offset a significant portion of his taxable income through strategic deductions.

2. Explained the Benefits of a Conservation Easement:

• A conservation easement preserves the property from future development, maintaining its natural state.

• Michael could claim a federal income tax deduction equal to the value of the development rights given up in the easement.

3. Valued the Easement and Coordinated with Experts:

• Partnered with a qualified appraiser to assess the value of the development rights, which totaled $800,000.

• Worked with a land trust to establish the easement and meet all legal requirements.

4. Maximized the Tax Deduction:

• Michael used the deduction to offset a large portion of his income from the business sale, significantly reducing his tax burden for 2024.

• Structured the deduction to be carried forward over several years, ensuring Michael could fully utilize it within IRS guidelines.

Results

• Substantial Tax Savings: Michael reduced his taxable income from the business sale by $800,000, lowering his overall tax liability in 2024 and future years.

• Preservation of Family Property: The easement guarantees that Michael’s family property will remain undeveloped, preserving its natural beauty for future generations.

• Enhanced Legacy Planning: Michael’s conservation efforts aligned with his family’s values and created a lasting impact on the local community.

Takeaway
A conservation easement can offer a unique opportunity to align personal values with financial goals, especially in high-income years. By leveraging the tax deduction, Michael preserved his family’s property while offsetting the tax impact of a significant business sale. If you’re looking to explore strategies that combine tax savings with long-term legacy planning, conservation easements can be an effective solution.