Saving Strategies for High-Income Earners

As high-income earners, many of our clients face significant tax burdens, often paying 37% or more in taxes. At Gray-Pilgrim & Associates, we emphasize the importance of savvy tax strategies and investment planning to help you retain more of your hard-earned wealth. Working with a financial planner and tax professional can provide invaluable guidance in navigating tax codes, optimizing investments, and implementing strategies to minimize your tax liabilities.



Pretax Strategies

Utilizing pretax programs can effectively reduce your taxable income. For those employed, options like Health Savings Accounts (HSAs) offer multiple tax benefits, including deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses. However, it's important to note that many of these programs have income thresholds that may limit eligibility.

Long-Term Care Deductions

If you have long-term care insurance, your premiums may be deductible, with the amount varying by age. For employees, the deduction ranges from $450 to $5,640 per person, while self-employed individuals can deduct 100% of the premiums.

2022 Contribution Limits for Pretax Accounts

• 401(k) and 403(b) plans: $20,500
• Traditional and Roth IRAs: $6,000
• Simple IRAs: $14,000
• HSAs: $3,650 for individuals, $7,300 for families
• Long-term care premiums: $450 - $5,640

Capital Gains

Timing your capital gains can significantly impact your tax burden. For instance, the Qualified Opportunity Fund allows for the deferment of capital gains until 2026, providing temporary relief but with the potential risk of higher tax rates in the future. Charitable trusts also offer a way to donate appreciated assets, avoiding capital gains taxes and providing a donation deduction.

Investment and Asset Location

Not all investments are equal when it comes to tax efficiency. Placing high-tax investments in tax-deferred or tax-exempt accounts can reduce your tax liability. Our wealth advisors can help you identify these opportunities and optimize your investment strategy.

Standard Deduction vs. Itemized Deductions

The choice between the standard deduction and itemizing can vary year by year, depending on your financial situation. Significant medical expenses or charitable donations might make itemizing more beneficial in certain years.

Tax-Free Growth Opportunities

Once you've maximized your pretax strategies, consider investing in tax-free growth options. For example, 529 plans offer tax-free growth for education expenses, while Universal Life Insurance policies provide a way to grow wealth tax-free, with the potential for loans against the cash value without tax implications.

High-income earners need a comprehensive financial plan to manage their taxes and protect their wealth. Utilizing pretax strategies, managing capital gains and investments, and exploring tax-free growth opportunities are key components of this plan. At Gray-Pilgrim & Associates, we work with you to develop a personalized strategy to minimize your tax burden and maximize your financial potential. Contact us today to start planning for a more prosperous future.