Here are some strategies to consider:
- Roth 401(k)
If you are looking for tax-deferred or potentially tax-free growth, you might want to consider putting some of your retirement savings into a Roth 401(k) instead of a traditional 401(k), paying the tax now instead of later. Note that the contribution limit is the same for both: $20,500 in 2022, with $6,500 in catch-up contributions for those over 50. Many, but not all, 401(k) plans offer the option of a Roth 401(k). Some plans also allow after-tax contributions to traditional 401(k)s, up to the total defined contribution limit in 2022 of $61,000, which includes both employer and employee contributions. Some plans also allow converting those after-tax contributions to Roth 401(k) contributions. But be aware that this strategy, known as the "backdoor Roth," might be eliminated by future legislation. You should consult with your plan administrator if you have questions about your plan details. - Deferred annuities
Some high-income investors, who have already taken full advantage of tax deferral through workplace plans like 401(k)s and/or IRAs, may still seek additional tax deferral. They may benefit from the use of low-cost variable annuities, which can bring a variety of benefits, including deferring investment gains until assets are withdrawn. However, these are complicated investments, so be sure to consult with a financial professional. - Estate planning
Careful estate planning can also help you secure your financial future and generations to follow. The status quo may remain until 2026, when the current estate tax exclusion amount ($12.06 million for 2022) is set to shrink to an inflation-adjusted $5 million. If you already have an estate plan, you may want to ask yourself some follow-up questions and not be caught short if there are changes down the road. For instance, are your trustees or executors still appropriate considering your estate-planning goals? Perhaps they've aged or your relationship has changed. Also, are your children now of age? You may want to update provisions relating to your beneficiaries. You may also have had new family members join the family, or others may have left through divorce, or you could have moved to a state with different estate-planning rules. "An estate plan should evolve as your circumstances do," says Christy. - Gifting
With equity markets hovering around all-time highs, and the prospect of rising interest rates in 2022, some people may also begin to evaluate their annual gifting strategy. For example, if you believe the markets may pull back, you might want to be prepared to make a gift when asset values have declined, with the hope that the appreciation to follow will be outside of your estate. On the other hand, if you believe the markets will continue to increase, gifting at the beginning of the year can help capture the appreciation throughout the year.