How can I reduce my tax liability more?

[Bearded Man]

The numbers:

150K salary, no state income tax.

I contribute to a traditional IRA about 5.5K per year to reduce my tax liability.

I also depreciate two rental properties, but am adding more to the portfolio.

I contribute 3.5K to an HSA.

I wanted to contribute to a traditional 401k, but it looks like my company only does a Roth...

No kids, not married, gf lives with me.

I was hoping to use the 401K to reduce my liability but looks like that's a non starter.

Surely there is another way to reduce my taxable income without actually reducing my income. Most of the rental income is sheltered from taxes thanks to the deductions.

[Tjat]

Well, if you are able to do a 401k, you wouldn't be able to deduct for the traditional IRA, though I've never heard of an employer only offering a roth 401k.

Is your HSA at least a pre-tax deduction? The only other thing I can think of is tax loss harvesting. Unless you want to become a sole proprietor on the side, which will open up another 53K of pretax savings (if you earn that much).

[MDM]

150K salary, no state income tax.

I contribute to a traditional IRA about 5.5K per year to reduce my tax liability.

I wanted to contribute to a traditional 401k, but it looks like my company only does a Roth...

I was hoping to use the 401K to reduce my liability but looks like that's a non starter.

Unless you have huge rental losses, there is (as Tjat indicated) something wrong with having that much income and access to any kind of 401k, yet deducting IRA contributions.  See https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

[DaveR]

No kids, not married, gf lives with me.

Get married, have kids. Of course, that might bring on a few new issues.

I was thinking that you could set up the rentals in their own entity which would allow you to be an employee and have a solo 401k or SEP IRA. But since you've sheltered that income already, there isn't profit that you can use for retirement accounts. Though you might get by with operating at a loss for a year or two, unless you want to cozy up with an IRS auditor, probably not a good strategy.

I'd say your best bet is figuring out what your options are with your company, if any. A Roth-only 401k seems odd. The tax consequences of that means that you could find a new employer, at a lower salary, and still come out ahead.

[Retired To Win]

Well, if you are able to do a 401k, you wouldn't be able to deduct for the traditional IRA...

Our experience was that you CAN have a 401K and a traditional IRA as long as the company doesn't do a match on the 401K.  We actually had the IRS challenge our taking both deductions but they backed off right away when the above fact was pointed out to them.

Good luck.

[MDM]

Our experience was that you CAN have a 401K and a traditional IRA as long as the company doesn't do a match on the 401K.

Could you cite the pertinent IRS document or US Code?  Seems inconsistent with the usual advice so it would be great to see the reason it is true.

[msilenus]

Why is the Roth 401(k) a non-starter?  Do the options stink?

Say you put 18k in for 5 years . That's 90k in principle, plus some growth hopefully.  Let's say 100k to be round.  With the S&P 500 throwing off about 2% in dividends, that's about 2k/yr of sheltered income going forward, with a ton of capital gains avoidance to look forward to late in life.  The annual sheltering is higher if you're using tax-efficient fund placement and prioritizing bonds in that space.

Once you've deducted everything you can (as it sounds like you have), the only thing left is structuring and sheltering your assets to avoid creating more income in future years.  That's less sexy in the short term, but snowballs over the long-term.

[WYOGO]

No kids, not married, gf lives with me.

I'd say your best bet is figuring out what your options are with your company, if any. A Roth-only 401k seems odd. The tax consequences of that means that you could find a new employer, at a lower salary, and still come out ahead.

This. In an income tax free state as an individual income earner, 85-90K or so seems to be around the sweet spot and maximum to take full advantage of all deductions and such and not be phased out assuming one takes the standard deduction, this of course applies only if you are already covered by a workplace 401K plan.

In this scenario you are not doing the heavy lifting alone.

[Retired To Win]

Our experience was that you CAN have a 401K and a traditional IRA as long as the company doesn't do a match on the 401K.

Could you cite the pertinent IRS document or US Code?  Seems inconsistent with the usual advice so it would be great to see the reason it is true.

Look it up at irs.gov.  That's what I did when I got the IRS mail audit notice.

Good luck.

[brooklynguy]

Look it up at irs.gov.  That's what I did when I got the IRS mail audit notice.

Good luck.

I believe MDM was asking if you could provide some authority to back up your claim because, by all accounts, it is not true.  As far as I know, one's ability to deduct IRA contributions while simultaneously being covered by a retirement plan at work is limited by one's modified adjusted gross income as outlined in the IRS guidance linked to by MDM above (whether or not the employer matches employee contributions under the retirement plan).

[MDM]

I believe MDM was asking if you could provide some authority to back up your claim because, by all accounts, it is not true.  As far as I know, one's ability to deduct IRA contributions while simultaneously being covered by a retirement plan at work is limited by one's modified adjusted gross income as outlined in the IRS guidance linked to by MDM above (whether or not the employer matches employee contributions under the retirement plan).

Exactly.

[Bearded Man]

150K salary, no state income tax.

I contribute to a traditional IRA about 5.5K per year to reduce my tax liability.

I wanted to contribute to a traditional 401k, but it looks like my company only does a Roth...

I was hoping to use the 401K to reduce my liability but looks like that's a non starter.

Unless you have huge rental losses, there is (as Tjat indicated) something wrong with having that much income and access to any kind of 401k, yet deducting IRA contributions.  See https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

That was last year when my MAGI was just under the limit. This year I guess I won't be able to use the IRA.

[Tjat]

The IRS has this available, which does seem to imply you can deduct an IRA contribution even with a plan at work IF your MAGI is low enough

https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

Odd, as I and others were under the opposite impression.

[MDM]

The IRS has this available, which does seem to imply you can deduct an IRA contribution even with a plan at work IF your MAGI is low enough
https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

Yes, that is correct. 

[Cathy]

I wanted to contribute to a traditional 401k, but it looks like my company only does a Roth...

Unless you have huge rental losses, there is (as Tjat indicated) something wrong with having that much income and access to any kind of 401k, yet deducting IRA contributions.

The deduction for "retirement savings" is limited or eliminated if the taxpayer or the taxpayer's spouse is an "active participant" in "certain pension plans", including being an "active participant" in a plan commonly referred to as a 401(k) plan. 26 USC § 219(g). The statute does not explain what differentiates an "active participant" from a person who is not an active participant. This is an example of a situation where "[f]illing gaps in the Internal Revenue Code plainly requires the Treasury Department to make interpretive choices for statutory implementation". Mayo Foundation v. United States, 562 US 44, 131 SCt 704, 713 (2011). In this case, the "interpretive choice[]" is found in 26 CFR 1.219-2(f) (as referenced in 26 CFR 1.219-1(c)(2)), which says that "an individual is not an active participant [if] ... such individual elects ... not to participate in such plan".

Bearded Man's OP seemingly indicates that he does not participate in whatever plan his work offers.

[MDM]

Bearded Man's OP seemingly indicates that he does not participate in whatever plan his work offers.

Could well be.  Depends on what was elided by the ellipsis in the OP.  Either "my company only does a Roth so I don't contribute at all" or "my company only does a Roth so that is what I contribute to" is plausible.

As https://www.irs.gov/Retirement-Plans/Are-You-Covered-by-an-Employer's-Retirement-Plan%3F notes (emphasis added):

You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:

    Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year;

    IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year; or

    Defined benefit plan (pension plan that pays a retirement benefit spelled out in the plan) and you are eligible to participate for the plan year ending with or within the tax year.

Box 13 on the Form W-2 you receive from your employer should contain a check in the “Retirement plan” box if you are covered. If you are still not certain, check with your (or your spouse’s) employer.

Employers are not infallible so the presence or absence of a check is not proof, but it's not a bad place to start.

[Bearded Man]

I don't currently participate in a 401K at work because they only offer a Roth, though I might just start participating since it appears eve 71K is too much money for a single filer to be able to use it as a deduction. Ridiculous. If only I could get the 40+k in taxes back or at least only pay what the bottom income people pay, 2-3K a year. As if I enjoy giving my money away at the threat of imprisonment or death, so other people can have nice places to live, smart phones, lobster and caviar.

[Cathy]

I don't currently participate in a 401K at work because they only offer a Roth...

You may want to obtain a copy of the documents governing the plan, as is generally your right under § 104(b)(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), PL 93-406, 88 Stat 829, 849, codified at 29 USC § 1024(b)(2). An employer is not required by any law to offer a plan that meets the requirements of § 401 of the Internal Revenue Code. However, assuming that the plan actually does meet the requirements of 26 USC § 401, then the law contemplates that, if the employer offers a "qualified Roth contribution program", the employee "may elect" whether contributions are treated as normal elective deferrals or rather as "designated Roth contributions". 26 USC § 402A. The IRS website is not the law, but it explains this in much simpler language: "[I]n order to provide for designated Roth contributions, a plan must also offer traditional, pre-tax elective contributions". IRS Retirement Plans FAQs on Designated Roth Accounts.