Random strategy #1: Using your HSA for childcare/daycare expenses.

            This only works if the following applies:

1. You’re in a high-deductible health insurance plan (eligible for contributing to an HSA)
2. Have an HSA
3. Have young kids requiring childcare/daycare expenses

Assuming you don’t have a large HSA balance and are still in the HSA accumulation phase, you can simply take the money you would give directly to the care provider, put that in your HSA, then take that money out and pay the provider. Since HSA contributions are federally deductible you can lower your taxable income by what you contribute to the HSA. The max HSA contribution for 2024 is $8,300. The average cost for childcare can exceed this depending on where you live. For the sake of the example let’s say you’re in the 24% bracket. Assuming the full $8,300 contribution is made, you could decrease your taxable income by about $1,992 ($8,300 x 24% = $1,992). This won’t make a huge difference on tax day but it’s a good way to utilize an HSA if you have childcare expenses.

Random Strategy #2: Backdoor Roth conversions

If you’re single and your AGI is more than $146,000, the amount you can contribute to a Roth is phased out until your AGI reaches $161,000 and then it’s completely phased out (if you’re married and file jointly this range is $230,000-$240,000). A lot of clients come to advisors believing they simply can’t get money into a Roth if their AGI is beyond these limits. However, you can do what’s called a Backdoor Roth IRA. You’ll need a pre-tax IRA with a $0 balance, contribute up to the annual maximum to the IRA, then simply transfer the funds from the IRA into the Roth. It’s important to note that your IRA balance MUST be $0 when you deposit the funds or you’ll be taxed on the conversion to Roth.

Random Strategy #3: Using Your Roth as an emergency fund

            This isn’t a strategy I would necessarily recommend. However, if you play it safely you can utilize your Roth as an emergency fund. The general understanding around Roth IRAs is you put money in, let it grow for decades, then wait until you’re age 59 ½ to take it out. This is how you generally should view them. However, you can take out your basis (the amount you’ve put in) at any time for any reason with no penalties or tax implications. If you’ve invested $5,000 a year for the past 3 years you have a basis of $15,000 and can take this $15,000 out at any time. I would never advise someone to bank on this but it’s an option if you’re ever in a bind. It’s important to let tax free Roth money grow as long as you can because a tax-free asset in retirement is really powerful.  

Random Strategy #4: using your old 401(k) or IRA to fund an HSA

            The IRS allows a one-time transfer from an IRA to an HSA. It’s important to note that you can NOT transfer funds from a 401(k) directly to an HSA. However, you can roll the 401(k) funds into an IRA and go from the IRA to the HSA. The max amount you can transfer from an IRA to an HSA is the IRA contribution maximum for any given year ($7,000 for 2024). This is a good option if you’re looking to fund your HSA and have an old IRA or other retirement plan out there.

Random Strategy #5: Donating to charity

            The reason behind donating to charity shouldn’t be just to get a tax break. But it’s a good way to get a little extra help on your tax bill if you’re charitably inclined and have the funds to do so. You can deduct up to 60% of your Adjusted Gross Income if you contribute cash (the % of AGI varies based on the asset but that’s getting really into the weeds). The only “caveat” is that you must itemize deductions to take advantage of this. To itemize, your total itemizable deductions must be greater than the standard deduction of $14,600 if you’re single and $29,200 if you’re married and file jointly. So if you make a $10,000 donation you won’t be able to get a deduction. This is why it often makes sense to save multiple year’s worth of charitable donations for one year. So instead of doing $10,000 of donations 5 years in a row it could be more efficient to do all 5 years’ worth in the same year, or any combination among those 5 years. Again, you shouldn’t let the tax tail wag the dog. If it’s better for you or the charity to give whatever you can each year then do that. Giving to causes greater than ourselves may be worth more than a tax deduction.    

            Before you implement any of these strategies it’s probably best to consult a CPA or financial advisor. The tax code is really complex and there’s always exceptions and nuances. What works in general terms might not make sense for everyone’s situation.