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 always be the driving force behind financial decisions, knowing your options for preserving income can be a valuable resource.

Tax-advantaged Accounts

Maximizing contributions to taxadvantaged accounts lowers your tax bill by reducing your annual taxable income. Consider contributing the maximum allowable amounts to 401(k) or other workplace plans, traditional or self-employed IRAs, and health savings accounts. 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 make contributions to a Roth individual retirement account. However, they can convert assets in a traditional IRA to a Roth IRA and pay taxes on the conversion. 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 big impact on earnings. Consider keeping tax-efficient mutual funds and exchange-traded funds 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

Contributing to charity may help you save on taxes. You could 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 the issuing life insurance company. Distributions from annuities are taxed as ordinary income and, if taken prior to reaching age 59 1/2, may be subject to a 10% additional tax.