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VIDEO: Tax Saving Tools for Railroad Retirement Thumbnail

VIDEO: Tax Saving Tools for Railroad Retirement

Retirement Financial Planning Taxes


Welcome everyone to the Railroad Retirement whiteboard. My name is John McNamara of Highball Advisors and today we're just going to talk about tax saving tools in your tool belt for railroad retirement. Things that you can do to just try and save some more money. You're working hard, you want to reduce those taxes. Who doesn't?

So we're going to start from my right, work our way over to the left. So the first thing, the best one out there is a health savings accounts. If you have access and you're in a high deductible health care plan, you can have a health savings account. What's great about them it is right off the bat it's triple tax free. There's nothing else out there that's triple tax free. So what do I mean by that? Is money you put in comes off your income, the money grows tax free and then when you take it out, it's not taxed.

That's triple tax free and obviously health savings account, what it implies is as it relates to your medical expenses. Okay, so that's a great tool. You can do up to 35... in 2020 up to 35, 50 as an individual. Up to 7,100 as a family and over 55 there's an $1,000 catch up, which is nice. So that's a no brainer. If you have the chance to contribute to a health savings account, you've got to max that one out. That's a no brainer because where else are you going to get triple tax free? All right, and everybody's going to have health care issues eventually.

Next one up, you're all mostly familiar with, is your double tax free, your 401ks, traditional and Roth. For your IRAs, your 401ks, actually there is a Roth 401ks and 529 saving for college. So double tax free. So you can either get your tax deferred on the way in, but you'll pay taxes on the way out. Or like with a Roth you pay up front and then there's no taxes on the backside. The other part is obviously growth is all taxed for no matter which way you do it. If you do a traditional or a Roth, your growth is always going to be taxed first. So that's a double tax free. Once again, maximum that as much as you can. Another great tool for savings.

So what can they do? They can contribute to a non-deductible IRA and what that is is instead of taking the tax deduction, so it's $6,500 a year, you just contribute to $6,500 into an IRA and you don't take the tax deduction. You can still contribute into it, but there's no deduction off your income. So you contribute it into there and then you convert that contribution of the traditional IRA into a Roth IRA. You just do the conversion, convert it in and bam, there you have it. Now the money has moved from the traditional into the Roth, which is where you want to be for the tax free income. So that's a great deal. Like I said, there's more to it. All right.

Then let's go further out here on the spectrum. This is the mega backdoor Roth strategy. This is very rare, but I just wanted to throw the concept out here because the point here, the first one is the most important one. The 401k plan must allow for after tax 401k contributions. So similar to the after tax contributions here in the backdoor, it's the same things in your 401k. So you max out your 401k and then you say well I want to keep contributing to my 401k but it's going to be after tax. It won't be tax deferred. So you can contribute up to $26,000 as an after tax contribution in 2020. Then that contribution is then rolled into a Roth IRA, thereby creating that mega backdoor Roth strategy and any gains that you've had on that up to the 26,000 that's got to stay in the 401k. Or you can actually roll that over to a traditional IRA and then you're going to wind up paying taxes on that when you take it out. That's just the way it is with all tax deferred vehicles.

So these are just four steps. Very high level, definitely focus, I love the health savings account. You got to really do those and then always max these out. Then this is more advanced here, but definitely worthwhile. Just trying to introduce some concepts to you so where you can save some money around tax time. I hope you found this helpful. Feel free to reach out to me if you want to discuss any further, check out my YouTube channel. Posting up some videos up there. I appreciate the subscribes on that. In the meantime, everyone please stay safe, stay on track and take care. Until next time, so long everybody. Bye.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.