As we approach the end of the year for Eli Lilly employees, it is important that they optimize their tax planning, from changing their paycheck withholdings to maximizing their retirement account contributions, and consulting with a professional can help with these strategies. According to Michael Corgiat, a representative of The Retirement Group, a division of The Retirement Group, 'It's crucial that employees of Eli Lilly companies complete their year-end tasks, such as modifying payroll deductions and maximizing IRAs, and seek professional guidance to optimize these strategies.' As suggested by Brent Wolf, a representative of The Retirement Group, a division of The Retirement Group,

“Eli Lilly employees should take advantage of year-end strategies to minimize their taxable income and consult with an advisor to make sure these actions are in line with their future financial plans.”

Some of the topics included in the article:

1. Paycheck withholdings to avoid tax bill or refund surprises.

2. Ways to decrease your taxable income through retirement savings.

3. Taking required minimum distributions (RMDs) from your retirement accounts if you are 73 or older.

Suggesting to our Eli Lilly clients that they consider taking advantage of the following year-end tax planning strategies. I want to make sure my clients from Eli Lilly companies take care of these tips by December 31 of this year, and find out if they can in fact lower their tax burden in the spring.

Check your paycheck withholdings

First of all, we recommend our Eli Lilly clients to review their paycheck withholdings. It's still important for our Eli Lilly clients to understand that an incorrect W-4 form can lead to either a refund or a tax bill at the end of the year. In 2020, the IRS removed the withholding allowances and allowed employees to specify the amount they want to increase or decrease their federal tax withholding directly. We recommend that our Eli Lilly clients use the IRS Tax Withholding Estimator to check whether they are paying the correct amount of tax or not and how much refund they can expect. Take action: For those of our Eli Lilly clients who need to make changes, please submit a new Form W-4 to your workplace indicating the amount of withholding (or withholding) indicated by the Estimator.

Tip:

This is as good a time as any for our Eli Lilly clients to ensure that their state income tax withholding information (if any) is up to date.

Maximize your retirement account contributions

Next, we suggest our Eli Lilly clients to maximize their retirement account contributions. Tax-advantaged retirement accounts like traditional IRA or 401(k) plan are funded with pre-tax amounts and compound over the years. That is a great way of investing in your future. They are also helpful at tax time, since any contributions you make to these plans lower your taxable income.

For the current tax year, the maximum allowable 401(k) contributions are the following: $24,500 for ages 49 and below $32,500 for ages 50 and above (including $8,000 catch-up contribution) For the current tax year, the maximum allowable IRA contributions are as follows: $7,500 for ages 49 and below $8,500 for ages 50 and above (including $1,000 catch-up contribution) For any Eli Lilly clients who have an HSA (health savings account), try to contribute as much as you can to that account (the current limits are $3,650 for individuals, $7,300 for families and an additional $1,100 for individuals 55 years and older).

Take action:

For our Eli Lilly clients who cannot make the maximum contribution to their 401(k), try to contribute the amount that Eli Lilly is willing to match. All 401(k) contributions have to be made by December 31 of every year. But, you can make contributions to IRAs and HSAs until the tax filing deadline in April of each year.

Take any RMDs from your traditional retirement accounts (if you are 73 or older)

Eli Lilly-sponsored retirement plans, traditional IRAs, SEP, and SIMPLE IRAs all require RMDs by April 1st of the following year, once you've turned 72. From then on, annual withdrawals must be made by December 31 to prevent a penalty.* RMDs are considered taxable income. If you do not take the RMD, you will face a 50 percent excise tax on the amount you should have withdrawn based on your age, life expectancy, and beginning-of-year account balance.

Take action:

Take your RMD by December 31. Your first withdrawal must be taken on or before April 1 of the following year once you turn 72 to avoid penalties. For those of our Eli Lilly clients who do not require the cash flow and do not wish to increase their taxable income, you may wish to consider a Qualified Charitable Distribution (QCD) from your qualified account to a public charity. However, these Eli Lilly clients will not be able to claim the charitable contribution itemized deduction. QCDs are limited to $100,000 per year. Unlike the rules for RMDs, QCD gifts are allowed as early as age 70 1/2 if you are philanthropic.

Explore Roth IRA conversion

Even though one can open and contribute to a Roth IRA depending on the income level, we would like to remind the clients of Eli Lilly that they can transfer some or all of the assets from a traditional IRA or workplace savings plan (e.g., 401(k)) to a Roth IRA. Roth IRAs can be very helpful to your retirement portfolio; traditional IRAs are taxed at the time of withdrawal in retirement, whereas Roth IRAs are not. This can help you have more control over your cash flow and your future tax planning. An exchange of assets from a qualified account such as 401(k) or traditional IRA to a Roth IRA is classified as a taxable event in the conversion year. The pre-tax amounts converted to the Roth IRA, and all the earnings of the pre-tax amounts, are included in the gross income of the taxpayer and are taxed as ordinary income.

Take action: We propose that these Eli Lilly clients seek the opinion of their tax consultant or financial advisor to establish whether a Roth conversion is feasible for them. The Eli Lilly clients who decide to convert their accounts should try to minimize the tax consequences. A strategy is to convert amounts only to the level that you stay in your current tax bracket. You can do Roth IRA conversions over a period of years to control the tax consequences.

Use any remaining balance in your flexible spending account (FSA) to spend it.

Flexible spending arrangements are basically the savings plans for the out-of-pocket expenses on healthcare. An FSA is a pre-tax differential to your medical expenses, so you pay less in taxes. You can deduct this loss against capital gains elsewhere in your portfolio, which means that the capital gains tax you owe is reduced. The idea of the tax-loss harvesting is to possibly shift the income taxes to the future, preferably when you are not working at Eli Lilly and thus in a lower tax bracket. This way, your portfolio will be able to grow and compound faster than if you had to take the money from it to pay the taxes on its gains.

Take action:

Tax-loss harvesting implies that one must monitor tax loss across a portfolio and the market movements because the opportunity to take tax-loss harvesting can be at any time. These Eli Lilly clients should seek the help of a financial advisor who will assist them in identifying the losses that can be used to offset gains. *Note: Tax-loss harvesting does not apply to tax-advantaged accounts including traditional, Roth and SEP IRAs, 401(k)s and 529 plans.

Bunching your itemized deductions

Certain expenses, such as the following, can be classified as itemized deductions: Medical and dental expenses. Deductible taxes. Qualified mortgage interest, including points for buyers. Interest on investment income. Interest on investment income. Charitable contributions. Casualty, disaster, and theft losses. In order to itemize, your expenses in each category must be higher than a certain percentage of your adjusted gross income (AGI). For instance, let's assume that you want to itemize your medical expenses. For the current tax year, the threshold for itemizing medical expenses is 7.5% of your adjusted gross income. If the medical expenses are 5% of your AGI, then it will not be beneficial to itemize.

Bunching is a way to reach that minimum threshold. In this example, you could delay 2.5% of your expenses to the following year. Thus, you will be more likely to cross the minimum 7.5% of AGI that next tax season which you will be able to itemize. Take action: For any Eli Lilly clients who have been waiting on certain medical and dental expenses or charitable contributions, you might want to group these expenses to take the most advantage of itemizing the deductions.

Use any remaining balance in your flexible spending account (FSA)

FSAs are basically bank accounts for out-of-pocket healthcare costs. An FSA is the amount of money you set aside from your salary for medical expenses before you pay taxes on it. When you inform Eli Lilly how much of each paycheck you want to set aside for your FSA, you should know that any balance remaining in the account on December 31 of this year will be taxed, and you will also be unable to access the money unless Eli Lilly permits a certain amount to be carried over to the following year.

Take action:

We propose that our Eli Lilly clients make sure to schedule any last-minute check-ups and eye exams by December 31, 2022. Get prescription drugs for you and your family. For those of our Eli Lilly clients who have a balance, try to purchase items allowed under FSA (e.g., contact lenses, glasses, bandages).

That same shift from growing assets to drawing them down applies directly to the pension decisions in front of you at Eli Lilly. Eli Lilly maintains an active defined benefit pension plan, meaning eligible employees continue to accrue benefits based on years of service and compensation. If you are eligible for a lump sum payout, IRS Section 417(e) segment rates determine how the future annuity stream converts to a present-value payment - rising rates compress the lump sum, so monitoring the plan's stability period and lookback month is critical before you lock in your election date. The choice between a single-life annuity, a joint-and-survivor option, or a lump sum (where available) is generally irrevocable once made, and timing that decision relative to interest rate conditions can meaningfully affect your retirement income picture.

On the healthcare side, Eli Lilly provides continued medical coverage to eligible retirees, which can bridge the gap between retirement and Medicare eligibility at age 65 or serve as a supplement to Medicare thereafter. Confirming the service and age requirements for retiree coverage, and understanding your premium contribution, is an important step in building an accurate healthcare cost projection. Coordinating Eli Lilly's retiree coverage with Medicare Part B and Part D enrollment timing can also reduce duplication and avoid late-enrollment penalties. Connecting your specific Eli Lilly benefits situation to a comprehensive retirement income plan - and understanding how each component interacts - gives you the most complete picture of what retirement will look like.

Sources:

1. Weltman, Barbara. '5 Tax Planning Strategies for Your Retirement Income.'  Investopedia , 23 Sept. 2024,  www.investopedia.com/retirement/tax-strategies-your-retirement-income