Save on Taxes

Steps you can take to save on taxes:

• Max out contributions to tax-advantaged accounts: 401k, HSA, IRA
• If you have self-employed income, consider a SEP IRA or Solo 401k
• If you're saving for education, use a 529
• If you're choosing a new place to live, consider your state's income and property tax
• If you're planning on a long sabbatical, consider doing a 401k to Roth IRA rollover

In More Details

Common Tax Advantaged Accounts: 401k, HSA, IRA — the easiest way to save money on taxes is to max out your contributions to these three accounts. For a traditional 401k, you'll be able to invest pre-tax money. For an HSA, you'll also be able to withdraw tax-free on qualifying medical expenses. For backdoor Roth IRAs, your contributions will be taxed but your earnings will be tax-free.

Self-Employed Income: SEP IRA or Solo 401k — if you're self-employed (or you have a side project earning income), consider opening up a Simplified Employee Pension IRA or a Solo 401k. These retirement plans are available for self-employed individuals. They can also exist alongside your regular 401k and Roth IRA.

Saving for Education: 529 — the 529 plan is another tax-advantaged savings plan specifically for college savings. If you're saving college tuition for someone, a 529 will allow you to have tax-free earnings and withdrawals.

State Income and Property Taxes — if you're deciding between residing in two or more states, take their income and property taxes into account. While these rates shouldn't be your primary motivation, it can be a deciding factor. If you work remotely, your state income tax will be your state of residence.

401k to Roth IRA rollover — taking a long break? If your annual salary will be significantly reduced, it's the perfect time to perform a traditional 401k to Roth IRA rollover. Since Roth rollovers are a taxable event, a conversion tends to add a huge amount to your taxable income. If you're already making a high income, your rollover will be taxed at the highest tax brackets. But if you're taking a sabbatical, your rollover could be taxed at the lower brackets.

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