Analyzing Taxation: Pension Plans, 529 Plans, and Itemized Deductions

This essay provides an overview of taxation strategies, focusing on pension plans and college savings. It highlights the tax benefits associated with pension plans during the investment phase, noting that contributions are subject to rebate, while also addressing the tax disadvantages during the recovery phase. The essay also discusses the benefits of 529 plans for college savings, emphasizing tax deductions and potential growth. Furthermore, it touches on the impact of tax reforms on itemized deductions, such as those for home mortgage interest and charitable donations. The document concludes by referencing Schedule A adjustments and limitations on state and local taxes, offering a comprehensive look at various tax planning elements.

Running head: TAXATION 1
Taxation
Name:
Institution:
Date:

TAXATION 2
Pension plans are one of the most common strategies to pay less income tax
statement. The tax benefits of pension plans is positive at the time of investing, but not so
much when recovering the money.In addition to assistance when the time comes for
retirement, the taxation of pension plans makes them an element to take into account when
making our tax planning. Its main advantage is that the contributions are subject to rebate
(Ricardo, 2016).
Taxation of pension plans
On the contrary, they have tax disadvantages at the time of computation recovery, that is,
when recovering the money, and a limitation to the cases in which you can recover the
money. When dealing with pension in different years, it is important to differentiate taxation
from pension plans between the time of investment and the subsequent recovery of money
once retired (Ricardo, 2016).
Taxation of contributions to the pension plan
Pension plans allow us to pay less taxes on 2015 income for the investments we make.
We are talking about a reduction of the tax base margin that of a deduction to the use like the
one that for example is applied when buying a house.What happens is that the money you
allocate to the retirement plan will be subtracted from your tax base and, therefore, you will
pay less taxes. Contributions to colleges are made with after tax dollars. The earnings within
the college savings plan occur on a tax deferred basis.
I would encourage the Smiths to take advantage of tax deductions. An account that is opened
for a child at birth , which gets a monthly contribution of $100 means that by the time the

TAXATION 3
child turns 18, the account would have $50,000 , assuming that there is a growth rate of 8%.
If the family manages to save over $10,000, in the short term, they can get a small tax break.
They can deposit the savings into an account and claim a tax deduction from the state and if
possible take up to $10,000 to pay the tuition fees. For example, Pennsylvania’s tax
deductions is most generous at $14,000 which translates to $430 in tax savings. There is new
tax laws proposed for capping deductions at lower rates or requiring some kind of holding
period. The 529 plan encourages savings for future college costs (Engdahl, 2011).
Approach to tax planning could be drastically altered by tax reform. For this year, itemized
tax deductions for individuals have been increased to $6500 and $9550 for heads of
households. Married couples that file taxes jointly will have deductions of $12,000. Most of
the itemized deductions have disappeared leaving the home mortgage interest deduction and
charitable donation deduction (Engdahl, 2011). Itemized deductions that were found in
Schedule A have been adjusted. Still on schedule A, the state and local taxes remain in place
but are limited. Foreign real property taxes may not be deducted under this exception.

TAXATION 4
References
Engdahl, S. (2011). Taxation. Farmington Hills, MI: Greenhaven Press.
Ricardo, D. (2016). On the principles of political economy and taxation. Lavergne, TN:
[publisher not identified].