Top 5 Tips to build your Retirement Corpus from your Tax Refunds

by Mounica Kota | Jul 26, 2019 | IRA, tax deductions, Tax Extension, Tax Planning, Tax Preparation, Tax Refund, tax savings, taxes

Top 5 Tips to build your Retirement Corpus from your Tax Refunds

Should I start investing for my retirement? When is the right time to start my retirement planning? These are some of the questions that a lot of us ponder over. And in the process of just thinking and not acting, we miss out on some crucial investments.If you have received some tax refunds, instead of spending it away, it is worth investing it for your retirement corpus. Today is the right time for you to start planning for your retirement. Here are some important tips that will help you build your retirement corpus.

401(K)

This might seem very obvious, yet a lot of taxpayers forget to exercise this option. If your employer offers a traditional 401(K) plan and you have the right eligibility, do not shy away from it. What makes this option interesting is that your investment is pre-tax. In simple words, the amount will be deducted even before any tax is calculated on your income. This allows you to make the most of it and invest more. Some employers offer Roth 401(K), which essentially deducts the amount after taxes have been calculated. Consider the tax bracket that you might retire in and choose a plan accordingly.

Catch-Up Contributions

Since there is a cap on the amount that you can contribute towards 401(K) for a fiscal year, it is recommended to start early with your retirement plans. However, it all changes as soon as you reach 50 years. The restrictions on the amount that you can invest are no more valid, thus you can invest more for your retirement. If you have missed out on some payments in the past, this is the time to do the catch-up.

IRA

The IRA or the Individual Retirement Account is another way by which you can invest for your retirement. You can either choose between a traditional IRA or Roth IRA. The Traditional IRA can be beneficial depending on whether you and your spouse have retirement plans in place from your employer. Based on your tax eligibility the contributions can e tax deductible and your funds will grow tax-free until you withdraw the funds. Roth IRA makes for a good choice if you qualify for phased out income limits. The investments are tax free if you reach 59 and a half years.

Match your employer

If you work for an employer that offers 401(K) it might be worth matching their contributions. Your employer can invest as much as 50% of your contributions, up to a maximum of 5% of your salary. Thus, if you are taking home $60,000 a year, you can contribute $3,000 for your 401(K). Your employer will have to contribute another $1,500. You would not want to miss out on this amount.

Automatic savings

Another smart way of ensuring that you save and money on a regular basis for your retirement is to set up automatic monthly contributions. This will save you from putting in efforts on a monthly basis and get your contributions some discipline. You can reach out to your bank to see the available options to invest automatically on a monthly basis towards your retirement funds.

If you have received any funds as income tax refunds, retirement investment is one of the smartest things that you can do with those funds. There are enough options available for you to either enhance your existing contributions or start fresh if you have not already. Individuals who haven’t yet started, you can start today and make the most of the different options available.

3 tax tips for second homeowners for NRIs in the US

by Mounica Kota | Jul 12, 2019 | Tax Extension, tax filing, Tax Planning, Tax Preparation, tax rate, Tax Refund, tax savings, taxes

3 tax tips for second homeowners for NRIs in the US

tax tips for second homeowners ,Buying a second home is a big decision and requires a lot of efforts on your end. It could well be that you already have a home and are planning for a holiday home or a weekend getaway or just for investment.However, amidst all this, do not forget that it comes along with a lot of tax considerations as well. Here are three major tax tips that you must consider before you write down that cheque.

Location

It is no secret, that the tax rates of property or house largely depends on the location that you are buying it at. Few states and municipalities have higher tax rates as compared to others. Thus, a quick check of the location that you want to buy the house in would help you save considerably on taxes.

Places such as Hawaii, Louisiana, Delaware and Alabama have the lowest tax rates for real estate in the country. Ranging between 0.28% to 0.53%, they can be great options to buy your second home. And on the other hand, places such as Illinois, New Jersey, Wisconsin have the highest tax rates in the country.

Buying a property outside the country is a different equation altogether. Unlike normal classifications such real estate taxes, you might have to pay a one-time fee.

Future Taxes

Should you pick a place and property smartly, the payoff can be quite satisfying. A good house in a good locality or upcoming locality will fetch you much better prices during selling. However, in hind sight do not forget the additional cost that they bring along with them.

While buying at lower prices and selling at higher prices means a lot of profit for you, being aware of the tax implication is also important. As the property value increases significantly, the taxes that you are eligible to pay would also increase considerably.

There is also a possibility that the White House decides to revisit the property taxes once every few years. If there is an increase in such prices, it would only increase the tax burden on you.

Interest on Mortgage

If you are planning to use the second property as a second home, there are some additional benefits to have had. However, these are possible only if you use the property as a second home and not rent the place out.

In such cases, the interest that you pay on your mortgage is deductible and behaves pretty much like the interest on the first house or property. Before 2018, taxpayers had the option to write off the entire interest amount that they paid if they had secured debts of up to $1.1 million on both the properties combines together. The amount is also valid if you choose to upgrade or improve the house in different ways.

The rules had been tweaked a bit where earlier the limit was set at $750,000. This can be a good and smart way of saving a substantial amount in taxes. It is quite common to rent out your second place. But you cannot avail the above benefits if you choose to do so. If you are looking to saves taxes, this method fares better results.

Whether it is your first property or second, if you have the option to save money on taxes, there isn’t any reason why you should not. The above tips are not only easy to follow but implement as well. If you are an NRI and are planning to buy your second home, these should help you save some money on taxes.