Explore the Following Options for Minimizing Various Tax Liabilities

Explore the Following Options for Minimizing Various Tax Liabilities

Explore the following options for minimizing various tax liabilities:

A 401k (for private sector employees) or a 403b (for many public sector employees) allows a worker to make contributions via payroll deductions which are exempt from federal income tax; income tax is paid in retirement when distributions are taken. This is favorable for most individuals because retirees tend to be in lower tax brackets once they retire. These tax-sheltered vehicles can result in maximized returns and tax avoidance when catch-up clauses and employer contributions are fully taken advantage of.

Individuals can reduce capital gains taxes by taking advantage of Roth IRAs. With this vehicle, tax dollars are contributed after-tax but are allowed to appreciate and be withdrawn later, tax-free. A more sophisticated method for minimizing capital gains taxes is a charitable trust, in which a grantor arranges for income payments to be made to an individual from the trust until a given date, at which point the assets in the trust are transferred to a qualified charity (A. Bell, 2008). Such trusts are generally tax-exempt.

Though the estate tax exemption has grown much more liberal