I'm Stephanie Sammons, a CERTIFIED FINANCIAL PLANNER™ and the Founder of Sammons Wealth Management. I help successful women professionals who are in midlife plan for their ideal retirement. Learn more about planning, saving, and investing for your ideal retirement at Sammons Wealth Management.
Quick Tax Tips for a Delayed Tax-Filing Deadline

Show Notes for this Episode

The Treasury Department has delayed the tax-filing deadline for 2019 to July 15th. If you file an extension (October 15th), your tax bill is still due on July 15th! Also, self-employed 1st and 2nd estimated quarterly taxes are due July 15th.

With this being the case, you still have time to take advantage of a few tax-savings opportunities if you are eligible.

Traditional IRA

The benefits of contributing to a traditional IRA are: you may be able to deduct the contribution, your money will grow tax-deferred, and you can invest the funds at today’s lower market valuations. You can contribute $6000 for 2019 and an additional $1000 if you are 50 or older.

Deductibility depends on whether or not you or your spouse are covered by a company retirement plan. If you are single and covered by a company retirement plan, your 2019 MAGI can’t be greater than $74k. If you are married filing jointly the upper limit is $123k.

If your spouse is covered by a company retirement plan, your MAGI as a couple cannot exceed $203k in order to deduct your contributions.

Please listen to the episode or download the transcript below to gather additional details about Traditional IRAs.

Roth IRA

Additional account types discussed in this episode include Roth IRAs, HSAs (Health Savings Accounts) and SEP IRAs for self-employed business owners.

Roth IRAs are an excellent opportunity to save additional funds for retirement that will grow tax free, and earnings distributions are also tax free if you pull funds out after age 59 1/2.

Roth IRAs are subject to eligibility requirements based on income. If you are single, you are not eligible for a Roth IRA if your 2019 MAGI exceeded $137,000 and if you are married filing jointly your 2019 MAGI can’t exceed $203,000.

Contribution levels for a Roth IRA are the same as traditional IRAs.

Tune in to this episode of the Midlife Money Gal podcast to learn more about potential tax savings opportunities before you file your 2019 taxes!

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(00:02): The treasury department has pushed back the tax filing deadline for 2019 to July 15th of this year. 2020 are you prepared?

(00:25): I'm Stephanie Sammons and experienced a certified financial planner helping women professionals navigate midlife and money.

(00:38): Well, you've probably heard by now, especially if you just listened to my intro that the treasury department has pushed back the 2019 tax filing deadline. Normally we file our taxes on April 15th and it has been delayed until July 15th of this year. 2020 in light of the Corona virus, the covert 19 pandemic.

(01:14): We are getting a little bit of relief here now. An extension of that date is still possible, so that is being molded over right now in Congress and we shall see if this deadline gets pushed back any further. I really hope not because I don't want it to have an unintended consequence of all of a sudden you've got to come up with 2020 payments at the same time. You have to come up with 2019 payments and your income may be lower this year and your financial assets may be down in value. So I think July 15th is probably a good target, but that could change. Now it is possible to file a personal extension on your taxes and if you did that you could delay filing your tax return until mid October, your personal tax return. However, if you owe taxes, your tax bill will still be due by the tax filing deadline of July 15th so just keep that in mind. If you're thinking about filing an extension, you still have to pay your taxes by the tax filing deadline.

(02:43): If you're self employed, your estimated quarterly tax payments for quarter one and quarter two of this year have also been delayed until July 15th now you may have already filed your taxes for 2019 and if you have, that's fine if you are expecting a refund on your tax return. If you've run the numbers and you still haven't filed yet, then I don't see any reason why not to go ahead and do so. If you're planning to see receive money back, there's no reason to delay or wait until July 15th so like I said, this deadline may get pushed back further, but I want you to act as if taxes are due and you've got to file by July 15th because I want you to start looking at your tax situation, determining what you may or may not owe by that time. If you are going to owe taxes, start setting those funds aside and preparing yourself to make that payment.

(04:07): Along with that, I thought of a handful of quick tax tips, tax ideas that you've may be able to take advantage of still on your 2019 taxes before we reached this July 15th tax filing deadline and that's what I wanted to talk to you about briefly today. Now the first thing is can you make a traditional IRA contribution? You are still able to make a traditional IRA contribution for 2019 up to your tax filing deadline plus extensions. Now you have to be eligible for a traditional IRA contribution, especially if you plan on deducting that contribution from your income. But the benefits of making a traditional IRA contribution include, you might be able to take a deduction for that contribution. You're going to get tax deferred growth inside of a traditional IRA and you also are potentially buying into the markets at a lower level. So there's lower valuation because of what's happened with the Corona virus.

(05:41): Pandemic financial markets have been hit by that and the markets have bounced back quite a bit since the low point was reached a little while ago. But we still have a long way to go. And therefore, if you're adding money now, you're still getting in at a lower level. So I think it's as good a time as ever to be adding to your investment accounts, especially retirement accounts so that you can continue building and growing your retirement nest egg. So in order to determine if you are eligible to deduct traditional IRA contributions, it depends on whether or not you or if you're married, you and your spouse are covered by a retirement plan at work and there are some income limitations that come into play if you are. And so I'll just briefly give you these numbers. I don't expect you to remember these details and I will put this information in the show notes for this episode.

(06:58): Midlife money, gal.com forward slash 48 the number four eight all right, so if you are not covered by a retirement plan at work and if you're married and neither you nor your spouse are covered by a retirement plan at work, then your traditional IRA contributions are fully deductible on your tax return. And I'll tell you how much you can contribute here in just a minute. If you are covered by a retirement plan at work, then that's when the income limitations kick in. So if you are single and you make more than $74,000 in 2019 that's your modified adjusted gross income, then you don't get a deduction. If you're married, filing jointly and your, you yourself are covered by a retirement plan at work and your income as a married couple is more than $123,000 for 2019, you get no deduction. If you are not covered by a retirement plan at work, but your spouse is and you are married filing jointly, then those income limitations go up a bit.

(08:25): If as a couple, your modified adjusted gross income is more than 203,000. In that scenario you wouldn't be able to take a deduction for your IRA contributions. So you just need to run the numbers on that and um, talk with your financial or tax advisor to determine if you're eligible for a deduction. Even if you're not eligible for deduction, you could still contribute to traditional IRA accounts and let that money grow tax deferred, get it invested and let it accumulate for retirement. So there's no rule against that. Even if you're contributing to an employer sponsored plan for retirement at work, you know you could still put money away into a traditional IRA. There might be a better option for you, which I'll talk about in a moment if you're not able to deduct your contribution anyway. So how much can you put into a traditional IRA based on 2019 income?

(09:36): You can put $6,000 into a traditional IRA for you and your spouse if you're married. So that's $6,000 a piece. If you are 50 years old or older, you can add an additional $1,000 to that contribution amount, so $7,000 per person into a traditional IRA. So it's not a significant amount of money necessarily, but it's still a nice sum to put away and invest toward retirement and get some tax advantage for that investment. Now, the better way to go, as I mentioned a moment ago, if you're not able to deduct a traditional IRA contribution would be a Roth IRA. A Roth IRA is different in that you're not going to get any tax deduction. This is not going to help you on your 2019 tax return. But it's worth mentioning because you still have the ability to fund a Roth IRA for 2019 up until the July 15th tax filing deadline. So that's why you need to look at these options and make a decision before it's time to file your taxes. A Roth IRA is a great tool in saving for retirement even though you don't get the tax deduction today. So you find a Roth IRA with after tax dollars, you've already paid taxes on this money, you put it into the Roth IRA,

(11:23): it grows tax deferred so you don't pay taxes on the growth. And when you go to pull out distributions from a Roth IRA, they come out tax free. So essentially you're never paying taxes on the earnings within your Roth IRA and those earnings grow tax deferred year after year after year. That's a huge benefit over the compounding of that and the ability to pull the money out and not pay taxes on it down the road is pretty significant. Now I always get the question, well Stephanie, what will tax rates be when I'm retired? And that's really a difficult, if not impossible question to answer. But here's something I will tell you with all of the government spending happening right now because of the coronavirus pandemic trillion dollar, multiple trillion dollar stimulus packages, one way that we end up paying for that as taxpayers is our taxes go up. So I think it's very, very likely that we will see tax rates increase over time. And in fact right now we are in a pretty low tax bracket or tax environment than we have been in quite some time. So our tax rates today are not that high when you look back at history. So that may be a case for paying taxes now and investing funds into something like a Roth IRA where you get to pull that money out tax free and not pay taxes on it later.

(13:31): So there's a caveat with a Roth IRA and that is there are income phase out levels to determine your eligibility. So for 2019 if you were single and you earned more than $137,000 for your modified adjusted gross income, you would not be eligible for a Roth IRA. If you were married filing jointly 2019 if you file jointly this year for 2019 and you made more than $203,000 as a couple, you would not be eligible for a Roth IRA. So you need to look at that. And then there are some phase outs where you may be able to make a partial contribution to a Roth IRA under those income levels. So I'm giving you the very tip top of the phase out level when you would not be eligible at all, single over 137,000 married filing jointly over 203,000 you won't be eligible. Remember, you also do not get a deduction for a Roth IRA contribution, but you get that other benefit of being able to pull funds out later on tax-free.

(14:57): Another thing about Roth IRAs, uh, we K and I, my spouse, we have contributed to Roth IRAs for our kids and they have to have earned income. So your kids have to have some kind of job where they actually earn income in order to be eligible for a Roth IRA. But it doesn't matter who contributes to that Roth IRA on their behalf. So we have found it to be a great way to put some money away for the kids and let it accumulate and build retirement's a long way away for our kids who are 20 and 17 but starting early makes a significant difference if you can start help your kids start saving now. And with a Roth IRA, they have the ability to pull out $10,000 for a first time home purchase without any kind of penalty on the earnings. Roth IRA contributions can be pulled out at any time because you've already paid taxes on that money.

(16:16): And remember you're funding a Roth IRA with after tax dollars, but that's kind of a nice little incentive if you can build a Roth IRA account for your kids or nieces, nephews, whomever, as long as they have earned income up to the point of your contribution and they can use $10,000 of that tour, their first home purchase. So I think that's a pretty cool thing to help your kids get started on something like that when they become young adults. Number three quick text tip here is if you are eligible for a high deductible health insurance plan and you signed up for one of those in 2019 then you are likely eligible for a health savings account, an HSA account. I've talked about health savings accounts on the show in the past and I'm a big fan of using these accounts to save for healthcare expenses in retirement.

(17:30): Now here's the deal on HSS and why I love them so much. You get a triple tax advantage with these things. Not only are your contributions deductible to an HSA, but the money grows tax free inside of an HSA and if you use the money for healthcare related costs, then your distributions are also tax free. So that's really a triple tax advantage. Now some people will fund their HSA accounts and use the money throughout the year to pay for healthcare costs. Typically an HSA account is going to be associated with a high deductible health insurance plan, meaning you probably have a very high deductible if you have one of these plans. I have one of these plans, so I think my deductible as are our family deductible is somewhere around $3,500 a year and each family member has to reach that level before, you know, things are covered on insurance so we can pull money out of our HSA accounts and pay for healthcare expenses as we go.

(18:55): But we try not to do that. We try to just pay out of pocket so that the funds inside of the HSA account can continue to grow and compound and accumulate over time. And the goal is that we have this chunk of money once we are retired. That is kind of our healthcare savings bucket that we can pull from and pay for any healthcare costs that might not be covered by Medicare, for example, down the road. So again, you have to have signed up for that high deductible health insurance plan in order to be eligible for the HSA, and maybe that's you, but you just haven't thought about what an HSA account could do for you or you haven't thought about contributing to one of these. If you do, you have until your tax filing deadline of July 15th now to make your HSA contribution based on 2019 if you're single, you can put up to $3,500 in that account and it's fully deductible.

(20:07): If you have a family HSA account and you and your spouse recovered under the same plan, then you can put $7,000 into a family account. If you and your spouse are covered by different plans, then I recommend you each establish your own HSA accounts, but a family account you can put up to $7,000 if either one of you is over 55 age 55 or if you're single and over age 55 you can put an additional thousand dollars into your HSA accounts. You get that extra added benefit for your age, which I'm not at 55 yet. I'm at 50 so I do get that extra thousand dollars benefit on a traditional IRA or a Roth IRA contribution, which is kind of a cool perk when you turn 50 if there is anything cool about turning 50 all right. Another little thing I'll mention is that if you are self employed, you can make a contribution to a SEP IRA account, which is a self-employment pension plan.

(21:24): It's a simple retirement account that allows you to put more money away as a self employed person than say a traditional IRA and get a tax deduction and that is a contribution up to 25% about 25% of your net income. There's a formula that you need to go through in order to determine your exact contribution amount into a SEP IRA account. So as always, with any of the suggestions that I'm making, make sure that you run your numbers and you check to make sure that you're doing the right thing for you. Because I am not your financial advisor. I don't know your personal situation unless you are my client, but you want to check with your financial or tax advisor about your personal situation. Alright? That's pretty much it for what you can do for your taxes before you have to file in 2019 or for your 2019 tax return in July. And again, that might change that deadline. Lots of changes to the 2020 tax rules on keeping a close eye on that. The secure act, the cares act, all that will come into play. So I'll be sharing that with you soon.

(23:11): To learn more and to join our community. This show is for informational and educational purposes. Please do not consider any of the content as personalized financial [inaudible].

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