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Doesn’t it feel great to finish your tax return and send it off to the I.R.S.? You can throw your hands in the air and say, “I am finally done!”

But wait one second. If you simply file and forget, you might be missing an important step in wealth-building: analysis.

This simple step can provide quite a bit of information about your finances. Here are three things to look for:

  1. Your Retirement Savings Contribution

Look at Box 12 on your W2. This is the amount you saved in your retirement plan at work.

How much did you save this year?

Box 12 can give you that information:

  • Code D = 401(k) for a private company
  • Code E = 403(b) for a non-profit or public school
  • Codes F, G, H, and S = another type of retirement plan

If you are seeing an AA, BB, or EE, it denotes a Roth contribution in various plans. Whatever your plan, the main thing to look for here is how much you are contributing.

Click here for more information on what the letter codes mean.

You can use this number to determine your personal savings rate. Divide the amount in the box by your gross salary. For example, if you made $50,000, and Box 12 of your W2 contains a D and the number $1,500, then you contributed $1,500, or 3% of your salary, to your retirement account.

Now check yours. What percentage of your salary are you contributing to your retirement plan at work?

  1. Your Top Marginal Tax Rate

Your marginal rate is the tax rate you pay on each incremental dollar of income. As your taxable income increases, so does the tax rate.

For example, a married couple filing jointly would pay 15% in federal taxes on dollars they earned above $18,551 in 2016. Any dollars they earned above $75,300 up to $151,900 would be taxed at 25%. (Click here for a complete list of the tax rates for 2016.)

If you are in a 25% marginal bracket, and you earn $1,000 in interest in a savings or investment account, you’d owe 25% ($250) in taxes on the investment.

Ouch! Taxes can really cut into your investment returns.

One of my clients has a top marginal tax rate of 35% (federal tax) and 5% (state tax). She has quite a bit of interest income, and she didn’t realize that because her taxable income is so high, the income from this investment is essentially taxed at 40%. So the IRS and her state taxes are taking 40 cents of every dollar she earned.

She is now exploring other investment options.

Consider the effect taxes have on your investment income.

  1. What's missing?

Are there some empty lines on your 1040?

  • Are you saving outside of your 401(k)? According to the  Bureau of Economic Analysis, the U.S. personal savings rate is currently 5.5%, up from 3.2% in January of 2005. Is your savings rate increasing with time? If so, where are you putting your savings and investment dollars?
  • Do you have interest, tax-exempt interest, qualified dividends, and capital gains?Look at line 8a, 8b, 9a, and 9b. (Here is a link to IRS Form 1040.)Are any of these populated? If so, is this number greater than it was last year or the year before?
  • Line 8a = interest income
  • Line 8b = tax exempt interest income (favorable if you are in a high marginal tax bracket)
  • Line 9a = ordinary dividends
  • Line 9b = qualified dividends (favorable for just about everyone!)

These lines show earnings from investments outside your retirement plans.

If they aren’t populated, you may be relying heavily on your retirement plan, or, if you are a business owner, on your business for investment and retirement income.  If there are quite a few empty lines on your 1040, you might not be investing outside of your retirement plans.  

In my role as a financial planner, I sit down with clients to analyze their financial situations, and I often describe each “case” as a puzzle. Over the years, people who are good savers amass different types of investment accounts — pieces of the puzzle — and my job is to coordinate how the pieces work together to create income streams for retirement.

Obviously, the more I have to work with, the better.

If a client only has one investment, a pre-tax 401(k), there isn’t much to work with when distribution time rolls around.

If he or she also has a Roth IRA or Roth 401(k),  tax-exempt municipal bond funds, a mutual fund or brokerage account with dividend producing stocks, and a Health Savings Account (for example),  his or her options significantly increase when we start to discuss developing a tax-efficient, sustainable, lifetime income withdrawal strategy.

If you want some idea where you are headed financially, consider using your tax return this year to get some clues.


Nancy L. Anderson, CFP is a financial planner in Park City, Utah.  You  can find her on NancyLAnderson.com,  FacebookTwitter and Deer Valley Ski Resort Official Blog.