Tax Tips for July 2024

by | Jul 1, 2024 | Tax Tips

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HSAs Can Be Powerful Retirement Saving Tools

Health Savings Accounts (HSAs) are tax-advantaged savings vehicles for funding health care expenses not covered by insurance. And for those in relatively good health, they also may serve as attractive retirement savings vehicles.

To be eligible to contribute, an individual must be covered by a high-deductible health plan (HDHP). In 2024, an HDHP must have a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. For 2024, you can contribute up to $4,150 to an HSA, $8,300 if you have family coverage (plus an additional $1,000 if you’ll be 55 or older this year). Contributions are tax-deductible and withdrawals used to pay for qualified unreimbursed medical expenses are tax-free.

Any funds you don’t need for medical expenses will continue to grow on a tax-deferred basis, providing a valuable supplement to your other retirement accounts. In general, once you reach age 65, you can use your HSA funds to pay for anything. Amounts spent that aren’t for qualified medical expenses will be subject to state and federal taxes, but not subject to a penalty. Contact the office with questions about adding an HSA to your plans for retirement.


Handle Your 401(k) Rollover With Care

Leaving a job? You may want to roll over funds in your former employer’s 401(k) plan to an IRA. But there’s a tax trap for the unwary. If you receive a 401(k) plan check that’s payable to you personally or if you have a distribution put into a personal account electronically, 20% of the taxable amount of the payout will be withheld for federal tax.

If that happens, you have 60 days to come up with the missing 20% and get it (along with the amount distributed to you) into your IRA. If by that deadline you transfer to your IRA only the amount distributed to you, you’ll owe income tax on the 20% withheld amount plus a 10% early withdrawal penalty if you’re under 59½.You can dodge this tax trap by arranging for a direct trustee-to-trustee transfer from the 401(k) plan to your IRA.


Valuable Tax Credit Available for Energy-Efficient Homes

Under the Inflation Reduction Act, construction contractors who build or rehab energy-efficient homes may be eligible for a federal tax credit of up to $5,000 per project. To claim the credit, builders are required to construct or substantially rehab a qualified home and own it during the construction process.

To be qualified, a home must be a U.S. single-family dwelling that’s purchased or rented for use as a residence. It also must be certified to meet energy-saving requirements before it’s sold or leased.

The credit value is based on whether the contractor acquired the home before or after 2023, and the certification and standards the home meets following construction. Contact the office for more information.