Creating your own
Pot O'Gold

March, the month for green. Not in the sense that spring is coming complete with the anticipation of green leaves and green grass that needs mowing (sorry, that part can wait). No, green as in money. Specifically, making, keeping, and saving more of it to be used to fulfill on your purpose. Whatever purpose that might be. It’s early enough in the year to be able to maximize the benefit of starting early.

When ole’ St. Patrick drove the serpents out of Ireland it wasn’t his intention to lead the Irish to the proverbial pot of gold (ever heard of the luck of the Irish, not so much) but the holiday named in his honor is a perfect reminder that we should be creating our own pot of gold. By taking advantage of all the legal ways we can keep more of what we make. IRAs, 401(k)s, MERPS, HSAs, SIMPLES. DBs, ROTH, hire the kids, hire the spouse, hire the brother-in-law, and the myriad of other acronyms and Internal Revenue Code sections used to describe all sorts of discounts in the tax code just waiting for you to put them to use.

Unfortunately, we’re accustomed to taking our tax bill as it may come. That usually occurs something like “Oh, I got a refund this year, less than I thought it would be, but still a refund” or, “crap, I had to pay”. We’re not accustomed to think in terms of being able to decide what discounts we put to work in our situation and we get to decide if and when we want to change our situation. It might be starting a simple business or side gig. That could be as easy as turning a hobby into a money-making endeavor or joining a network marketing organization. If the intent is to make a profit, it’s a business. No fancy filings or entities necessary to get started. Owning a business is the best tax discount available to us. The discounts in the tax code for businesses are voluminous whereas the tax code contains far fewer discounts for individuals.

An example of a tax discount, consider HSA contributions. If you have an HSA compatible health plan you can put money into a savings account and deduct the contributions or have them withheld pre-tax from your paycheck. Like a pre-tax retirement plan, but without income limitations, you save $15-$40 for every $100 you put in the account. But, the bonus is that if the money is used to pay or reimburse qualified medical costs, the money is never taxed. Most people use them like healthcare ATMs. Put the money in and take it out right away. Consider making contributions and leaving the money in the account for later. Years later. You can always take money out to reimburse already incurred medical expenses but it’s likely you’re going to need it in the future. Give it a chance to grow.

Maximizing retirement savings runs a close second in regularly missed individual tax discounts. Especially ROTH  contributions within employer 401(k) plans. The 2023 401(k) ROTH limit is $22,500 (under 50) vs $6,000 for a ROTH IRA. Further, 401(k) ROTH contributions are not reduced (or eliminated) as your income increases. If your income exceeds $153,000 ($228,000, MFJ) you cannot contribute directly to a ROTH IRA. Though the ROTH discount does not result in immediate tax savings, a ROTH account can grow tax-free 5, 10, 15 or more years before you access tax-free distributions. There currently are no required distributions from ROTH accounts. The benefit of that tax discount could be difficult to beat. If you own your own business your company can sponsor its own 401(k) plan.

If you’re following the rules and correctly implementing legitimate tax discounts you have no need to worry about possible shenanigans from the IRS. Go astray however and the IRS Leprechaun’s might stop by for more than to share a pint. Happy St. Patrick’s Day! The day everyone is Irish, even St. Patrick.

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