4 Smart Ways To Keep More of Your Income
Keeping more of what you earn is about more than adjusting your budget. The biggest differences often come down to how it's taxed and managed. Withholding, employee benefits, retirement withdrawals and investment income all affect the final amount.
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Review Your Tax Withholding
Jason Dall'Acqua, CFP, founder and financial advisor at Crest Wealth Advisors, said to review your tax withholding to ensure you're not having too much income tax withheld. He explained that the recent tax law changes may allow you to receive higher deductions on your return, which means your tax withholding can be lowered.
"Once you file your 2025 return, review it to see if you over-withheld and make adjustments accordingly to keep more money into your pocket," said Dall'Acqua. "Withholding coordination becomes even more important in dual-income households or if there is variable compensation involved."
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Review Your Employee Benefits
Dall'Acqua pointed out that if saving on taxes today is a priority, you should review your employee benefits. "This includes things such as retirement plan contributions, health savings account contributions (if you are eligible), and flex savings account contributions," he said.
These benefits allow workers to set aside money on a pre-tax basis, which can lower taxable income for the year.
Consider the Timing of Retirement Withdrawals
"If you are retired, particularly early retirement before you begin claiming Social Security or are subject to required minimum distributions, then determine whether early withdrawals or Roth conversions from your pre-tax retirement accounts makes sense," recommended Dall'Acqua.
He explained that even though the government doesn't require you to begin distributions until a certain age, it's not necessarily the most advantageous strategy. Oftentimes, he said, early withdrawals or conversions can be beneficial by better managing when you receive income and how much will be taxed. He added that this strategy can help reduce your lifetime tax cost if done appropriately.
For professional advice on how to time your retirement withdrawals, consult with a trusted financial advisor.
Decide Whether Tax-Free Bonds Make Sense
For high earners with bonds in their portfolio, Dall'Acqua recommended evaluating whether tax advantaged bonds, aka municipal bonds, make sense. He said these bonds pay lower interest rates than taxable bonds, but the income is tax-free if the bonds are from your home state.
"Look at what tax bracket you fall into, and calculate the taxable equivalent yield to determine whether a taxable bond or tax-free bond makes more sense for your situation," he suggested.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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