High Earners: Pay Attention to Your Financial Well-being

Everyone should closely monitor their finances, but higher-income individuals may need to take extra measures to keep more of their money. While goals should be the driving force behind financial decisions, your tax and financial professional can provide options for preserving income.

Tax-advantaged Accounts

Maximizing contributions to tax-advantaged accounts lowers your tax bill by reducing your annual taxable income. Additionally, you can make catch-up contributions to retirement accounts starting at age 50 and to health savings accounts beginning at age 55.

Roth Conversions

High earners may not be eligible to contribute to a Roth Individual Retirement Account (ROTH IRA). However, they can convert a traditional IRA to a Roth IRA and pay taxes on the gains. Your savings will have the potential to accumulate tax-free. Qualified withdrawals from your Roth IRA will also be tax-free, and you’ll avoid having to take required distributions.

Asset Allocation Adjustments

Where you hold investments can have a significant impact on earnings. Consider keeping tax-efficient investments in taxable accounts. Funds that generate higher taxes should be reserved for your 401(k) or IRA, where they’ll remain tax deferred until withdrawal.

Charitable Contributions

You can donate appreciated assets, such as stocks, to a charity and avoid paying capital gains tax; establish a charitable trust and take a tax deduction when the trust is created; or set up a donor-advised fund to manage your charitable donations and deduct your contribution on your income taxes.

Deferred Annuities

A deferred annuity is a contract with a life insurance company that is set to pay you a regular income or a lump sum of money at a future date. You won’t pay taxes on the money used to purchase the annuity until you begin making withdrawals, thereby reducing your current taxable income. Annuities are complex products, so consult your financial professional before investing.*

* Annuity products are not FDIC-insured, and their guarantees are backed solely by the claims-paying ability of their issuing life insurance company. Distributions from annuities are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax.