Guidance for Tax Season

Every spring, taxpayers rush to gather their tax documents to ensure they have everything ready for the April 15th filing deadline. Although anyone can file an extension, it does not delay paying any underpayments. If you know you are in an overpayment position, be sure to complete your taxes promptly to receive the refund.

Important note: Just because you are eligible to participate in some of the strategies below does not necessarily mean it is the right choice. Knowing which ones are right for you is a matter of trust. Please consult with one of our relationship managers if you have questions about various tax strategies. Always consult with a Certified Public Accountant (CPA) before making any tax-related decisions.

What to Consider When Finalizing Your Taxes

1. Health Savings Account (HSA)

What is an HSA? An account created to cover eligible out-of-pocket health care expenses for those who participate in a high-deductible health plan. Unlike a Flexible Spending Account (FSA), it is not a use-it-or-lose-it account. It can be used year over year and moved from company to company.

Why it may be Important: Contributions made by the employee and employer are put in a pre-tax environment, meaning that individual contributions are tax-deductible. These funds can then be used to offset future healthcare costs or invested for growth, such as in an IRA or 401 (k). One key distinction from a qualified retirement account is that any distributions (as long as they are eligible expenses) are not taxed as ordinary income. Therefore, you receive what most call a triple tax advantage—deduction for contributions, growth in the account is not taxed, and distributions are not picked up as taxable income.

Key limitations for 2025 contributions if you are eligible to contribute:

• Family HSA: $8,550
• Individual HSA: $4,300

Two additional notes on these accounts. They can be funded for the prior year through the April 15th tax deadline, and if you are 55 or older, you can add an additional $1,000.00 per year as a catch-up contribution. Click here for a complete list of the IRS-eligible HSA expenses.

2. Flexible Spending Account (FSA)

What is an FSA? 

Another type of pre-tax account that is sometimes available through your employer is a Flexible Spending Account. While there are some similarities to a Health Savings Account, there are also some very key differences. FSAs are dedicated to helping offset anticipated health costs, and contributions are made tax-deductible (pre-tax) to the employee. However, if the funds are not used in the calendar year, the employee would forfeit them. Employers may add a grace period of up to 2.5 months after the end of the year to use up the remaining funds, but this is not always the case. There are also special FSAs, known as dependent-care flexible spending accounts, that can be set up to cover expenses related to the care of children under 12 or qualified adult dependents.

Key limitations for 2025 contributions if you are eligible to contribute:

• Health Care FSA: $3,300
• Dependent Care FSA: $5,000 Married Filing Jointly and $2,500 for Single/Married Filing Separately

3. Roth Conversions

What is a Roth Conversion? Roth conversions involve converting your pre-tax retirement accounts, such as a Traditional IRA, into a Roth IRA. When you take a distribution from your Traditional IRA, it is taxed at ordinary income tax rates. This is because you received a tax deduction when the contribution was made. Roth IRAs, on the other hand, offer tax-free growth while also offering tax-free distributions. This is because all contributions to these accounts were not tax-deductible at the time of the initial contribution.

Why it may be important: When entering retirement, most individuals have a substantial balance in their pre-tax accounts. This can make it tricky to allocate discretionary spending in retirement, given the large balances that will eventually need to be withdrawn at ordinary income tax rates. 

During your Pre-Required Minimum Distribution (RMD) age, there is sometimes an opportunity to make Roth Conversions. This is because during this period, you are typically in a lower tax bracket and are not forced to take distributions subject to ordinary income tax rates. Suppose you can pre-pay taxes on a Roth conversion at a lower rate than what you would pay later on when RMDs are established. In that case, it can significantly lower your taxes during retirement while also diversifying your savings. We recommend consulting directly with your CPA or financial advisor to determine if this approach is suitable for you and to discuss the amounts you would be comfortable converting.

4. Traditional IRA/Roth IRA/401(k) savings

While you are completing your 2025 taxes from January 1 to April 15, you have the opportunity to lower your tax liability for the prior year, while also reducing your tax liability for 2026. 

Traditional IRA: A great way to do this is by making contributions to a Traditional IRA. You have until April 15 of the following year to make contributions to a Traditional IRA. There are limits to how much you can contribute based on the IRS and income limitations. If you have further questions, please consult your CPA or financial advisor.

Roth IRA: While contributions to a Roth IRA do not reduce your tax bill, it remains a valuable vehicle for diversifying your retirement savings. Similar to the Traditional IRA, there are IRS and income limitations on what you can contribute.

401(k): 401(k) savings are an integral part of your tax liability in any given year. Not only do you want to utilize a savings rate to participate in a company match, but you also want to take into consideration how much you are putting in for a reduction of taxes. Most 401(k) plans offer a pre-tax and Roth deferral component. This allows participants to utilize savings based on their effective tax rate.

Typically, when you are in a lower effective tax bracket, you want to utilize the Roth component, and when you are in a higher effective tax bracket, you should use pre-tax. Working directly with a CPA or financial advisor can help you determine the most tax-efficient amount to put into each.

5. Qualified Charitable Distributions (QCDs)

When you turn 73, you are required to take Required Minimum Distributions (RMDs) on any money that is in a pre-tax environment, such as a Traditional IRA. Beginning in 2033, this will adjust to age 75. 

When taking a distribution, regardless of need, you are generally taxed at ordinary income tax rates. If you are above the age of 70.5, it can often be advantageous to give charitably from your IRA rather than your checking account. When you deliver funds directly from your IRA, you reduce dollar for dollar the amount of taxable income that would otherwise be reported on your tax return. For the year 2026, QCDs are limited to a maximum of $111,000.