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One of the Best Tax Strategies Available

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Retirement Corner

tax strategiesOne of the Best Tax Strategies Available

The filing deadline for 2017 is almost here. If you dread filing your taxes each year, one of the most powerful tax-reduction strategies you can use is available to you at any time to help alleviate that dread.

The University of Texas System offers not one, but two plans that allow you to defer your income into a savings plan before you pay taxes on it, thus reducing your taxable income for the year. These plans are the UTSaver Tax Sheltered Annuity 403(b) Plan and the UTSaver Deferred Compensation 457(b) Plan.

Contributing to a UTSaver plan may be the smartest tax move you can make. For 2018, the maximum deductible amount you can contribute to both the UTSaver TSA and DCP plans is $18,500 ($24,500 for people age 50 or older). For someone in a 25% tax bracket, that’s a potential $4,625 to $6,250 current-year tax deferrment per plan. Plus any earnings on the contributions are tax deferred. (With a Roth, your contributions are after-tax, but your withdrawals are tax free so long as certain conditions are met.*)

You need to act quickly, though, so that you have time to maximize your 2018 limits. The longer you wait to increase your deferral rate, the harder it may be to maximize the tax-savings potential without sharply reducing your take-home pay.

* A “qualified” Roth distribution occurs when the Roth account has been in place for five taxable years (from the year of first contribution) and one of the following events has occurred: (1) attainment of age 59 ½; (2) disability; or (3) death.