Q&A with Merrill Lynch’s Randi Merel


With the April 17 tax deadline approaching, we are in the final stretch of the 2017 tax season. We spoke to Merrill Lynch’s Randi Merel about how to maximize available tax benefits for your 2017 filing and how to prepare for filing next year with the new tax law in effect.

What are some smart ways in which a tax filer can lower his/her taxable income? 

One of the most efficient ways is to reduce the cost burden of health care. This can be achieved through a health savings account (HSA), which can be used to pay for qualified medical expenses that are either not paid or only partly paid by your insurance. The best way to look at an HSA is to think of it as a 401(k) for health care expenditures. These accounts are generally available to people who are enrolled in a qualified high-deductible health insurance plan. 

HSAs allow you to save pre-tax or tax-deductible contributions for future health care costs. To take full advantage of this favorable tax treatment, consider making a contribution for 2017 or start planning your contributions for 2018.


Randi Merel, financial advisor with Merrill Lynch.  

If you haven’t been already, you should also consider maximizing your contributions to your employer-sponsored 401(k) and/or your Roth [individual retirement account]. Not only will this help reduce your taxable income, but it will add more to your retirement in the long run.

When it comes to contributing to your 401(k) or IRA conversions, are there any steps to take before the next filing year?

If you're not on track to reach the maximum contribution amount, think about increasing your contributions through the end of this year and even into next year. You have until the date your federal taxes are due to contribute to a traditional IRA for the previous tax year (assuming you meet the income limits). You also have until tax day to continue making contributions to a Roth IRA for the previous year. This wouldn’t give you immediate tax benefits, but it could help reduce your taxes when you begin making withdrawals from the IRA.

Although there are income limitations for contributions to a Roth IRA, anyone can convert all or a portion of the assets they have in a traditional IRA (or another eligible retirement plan) to a Roth IRA regardless of income or age.  Unlike a traditional IRA, qualified withdrawals from a Roth IRA are generally not subject to federal taxes as long as you are at least age 59.5. But be aware that you will generally be required to pay income taxes either at the time you convert from your traditional IRA to a Roth IRA or, if you don't convert, when you retire and take withdrawals from your traditional IRA. Depending on your situation, it may make sense to convert and pay the taxes now. Consult with your tax adviser before making a decision.

Can college-savings plans keep pace with the skyrocketing costs of college?

Yes, college-savings vehicles, like 529 plans, should be part of any sound college-financing strategy. Earnings in a 529 plan grow tax-free and are not taxed when withdrawn to finance the cost of college. Moreover, few states restrict access to their 529 plans based on residence, which means you can shop among a variety of different plans.

Also, as of Jan. 1, tax-free withdrawals may also include up to $10,000 in tuition expenses for private, public or religious elementary and secondary schools (per year, per beneficiary). Depending on the amount and consistency of contributions, some 529s may not satisfy the complete cost of college. However, a 529 plan could be used in combination with other actions to finance the cost of college, including working through school and taking transferable credit hours at a lower-cost community college over the summer.

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