Tax Filing Day is Extended to May 17
Taxpayers get an extra month to pull together their reports and receipts for their accountants, now that the Internal Revenue Service has issued a tax return deadline extension until May 17. The reason given was pandemic related, as many Americans are dealing with economic upheaval. You may recall that last year, the deadline was pushed to July 15 as the country underwent extraordinary circumstances, high unemployment, and general distress related to COVID-19.
The May 17 target date allows those who’ve been out of work, had hours cut, or are just getting back into the workforce time to figure out their finances and review tax changes that went into effect with the American Rescue Plan. For example, unemployment benefits up to $10,200 received in 2020 are tax free for individuals with incomes below $150,000. A few things to note:
- The extension is for 2020 federal tax returns only, not state returns. Check with your state agency to find out if their deadline has changed.
- Taxpayers who pay quarterly estimated taxes still must pay the next installment by April 15.
- If you’ve already filed your 2020 federal return and are eligible for the recently passed tax break, do not file an amended return until the IRS issues additional guidance on that matter.
- Filing timely may help those whose 2020 income creates eligibility for a stimulus payment or a larger one than anticipated. Your tax professional can explain more in detail about how you may qualify and how the filing extension may affect you.
At Next Generation, here’s a caveat we like about this filing extension: it gives taxpayers more time to contribute to their retirement accounts and reduce 2020 income (since the prior year contribution deadline was also extended to May 17) using stimulus money or compensation from their restarted or new job. Contributing to your retirement plan has the potential to qualify an individual for stimulus funds by reducing income on the tax return (for tax year 2020). And of course, if you have a self-directed IRA or other self-directed retirement plan, health savings account (HSA), or education savings account (ESA), you can also leverage the power of alternative assets to build a more diverse portfolio and a hedge against stock market volatility.
Weather-related extensions for affected taxpayers
In Louisiana and Texas, people affected by the bitter February storms and cold snap now have until June 15 to complete activities related to retirement plans (IRAs and employer-sponsored plans), HSAs and ESAs. These time-sensitive activities, which typically must occur by the tax filing deadline, include:
- Making contributions for the 2020 tax year to a Traditional, Roth, Simple or SEP IRA, HSA, and Coverdell ESA
- Completing various types of rollovers
- Extending the time frame for using IRA distributions for first-time home purchases without penalty
- Filing Forms 5498, 5498-A, 5498-SA, 990-T, and 550 with the IRS
- Making corrective distributions of excess deferrals, contributions and aggregate contributions to qualified retirement plans
If you are in the affected areas, you can read more here.
It’s always a good time to invest in alternative assets
All those retirement plans and other accounts noted above can be self-directed—including HSAs and ESAs.
Savvy investors who self-direct their retirement plans (as well as other plans) enjoy the benefits of portfolio diversification. They can also take advantage of investment opportunities as they arise or invest in assets that align with their values or goals. Examples of alternative assets allowed in self-directed IRAs are real estate, precious metals, notes/loans, private equity, cryptocurrency, impact investments and more. We recently presented webinars on how to invest in music royalties and impact investments, so you can see the field is quite open for including nontraditional investments you already know and understand—any time of year.
Here’s another tip: you can schedule a complimentary educational sessions with someone from the Next Generation team; or contact us directly via phone at 888.857.8058 or email NewAccounts@NextGenerationTrust.com to get answers to your questions about self-direction as a retirement wealth-building strategy.
Self-Directing your HSA Can Help Boost Your Savings for Future Medical Expenses, Tax Free
It’s common today for people to have a high-deductible health plan (HDHP)—one with a higher annual deductible and out-of-pocket maximums (and slightly lower premiums) than typical health insurance plans.
Those high deductibles may be a hard pill for many people to swallow, but HDHPs allow individuals to open and fund a health savings account (HSA). HSAs provide three tax-advantaged ways to save and pay for qualified medical expenses. The tax benefits of these accounts are:
- Funds deposited into an HSA are not taxed
- The balance in the HSA grows tax free
- The amount withdrawn to pay for qualified medical expenses (including copays, coinsurance, premiums, dental care, eye care, and prescription drugs) is not taxed
After a person hits 65 years old and is on Medicare, he or she can no longer contribute to the HSA but the funds may be used for other expenses without penalty; however, any non-medical distributions are treated like those from a Traditional IRA and subject to income tax on the distribution. Unlike a Traditional IRA, there are no required minimum distributions.
Your savings can accrue year after year, just like in an IRA. And just as you include alternative assets within your IRA, you can also invest the money you accrue in your health savings account—and purchase alternative assets to build up your savings for the future.
Just as with any self-directed retirement plan, you can give your health savings account a boost by including nontraditional investments such as real estate, precious metals, notes, private equity, and more. Self-direction allows you to use your expertise in the investments you’re passionate about, and may bring you comfort in knowing you’re making your own investment decisions. And, if you have relatively low medical costs and build up a healthy balance in your HSA, you have another avenue for growing your retirement savings with the potential for higher yield than the returns on a typical savings account. The broad array of diverse investments allowed through self-direction also provide a hedge against stock market volatility.
The contribution limits for HSAs in 2020 will be $3,550 for an individual and $7,100 for a family; individuals 55 and older can make an additional $1,000 catchup contribution.
You can have more than one HSA and you can transfer funds between them—so you may choose to use one to cover medical expenses or medical emergencies and another building wealth as a long-term investment for future medical expenses or supplemental retirement income. With health care costs continually rising, and today’s workforce expected to need at least $260,000 to cover medical expenses during retirement, having a self-directed HSA can help.
By including alternative assets and self-directing your health savings account, you’ll have more options for creating a cushion for medical or other expenses when you retire—and you’ll maximize your HSA contributions while you are able.
If you have questions about self-directed HSAs or any self-directed retirement plans, Next Generation can help with one of our complimentary educational sessions. Or, contact our team about self-directed IRAs and the many types of nontraditional investments these plans allow. We’re available via phone at 1-888-857-8058 or email: NewAccounts@NextGenerationTrust.com.