Tax and Insurance Strategies

How Our Financial Advisors Help with Strategic Tax Planning

Retirement Tax Planning, Protecting your Nest Egg

When it comes to retirement, it is often both our biggest savings challenge and our largest tax liability. By following a plan for tax diversification of your current retirement accounts, you can help to solve some of your greatest tax problems of today as well as tomorrow. Oftentimes, it can simply be a matter of a better understanding of how to correctly diversify your contributions among pre-tax, after-tax, and a Roth account. While pre-tax is an excellent choice for lowering your ordinary income today, many people find themselves running into a problem once RMD’s (Required Minimum Distributions) hit. An RMD is the amount of money that will get forced out to you from your pre-tax retirement accounts once you turn 70 ½ years of age. As a result, many people end up needing to withdraw more money from their retirement accounts to pay taxes on the large sum that has been forced out of them. While those looking to be in a smaller tax bracket come retirement may not be as affected, those with higher tax brackets in retirement can be looking at a fairly substantial amount in taxes that will need to be paid. As a result, they may need to pull more money from their retirement account than they had originally accounted for all to find that their nest egg is getting depleted at an alarming rate. 

Meanwhile, after-tax money is money that you have paid taxes on initially but may need to pay taxes on again in the case of any earnings. For example, if you put $20,000 into an after-tax account and it grows to $80,000 you will need to pay taxes on the growth which is $60,000. Similar to an after-tax account, a Roth account requires you to pay taxes on your initial contributions. However, unlike an after-tax account, you will never need to pay taxes on those contributions ever again. In other words, if your $20,000 grows to $250,000, you have already paid taxes on the $20,000 and no longer need to concern yourself with paying taxes on any of those earnings. If you are willing to lose out on a portion of the tax deduction for today, you may be interested in contributing some of your retirement contributions to a Roth account. For those who earn too much in a year to be able to contribute to a Roth account, all hope is not lost. There are still ways that you are able to contribute to a Roth account. Although it may be easier to simply choose Roth as the way you contribute all of your money going forward, there is still a lot of benefit to taking advantage in a deduction of your taxes today with a pre-tax account. Our strategies around tax planning with your retirement in mind is truly a balancing act. Not one person’s situation is alike and planning with taxes in mind is a reflection of that. However, by understanding what is the best way for you to take advantage and diversify your contributions, we help you consider tax-efficient savings or tax-saving investments and mitigate a lot of your current and future tax liabilities.

We also focus on what most people don’t consider when planning for their retirement, which is that their social security can be taxed. Although it depends on your income level, many of us can plan on getting taxed up to 85% on our social security. This usually translates into a large tax bill that no one saw coming. As a result, many people end up needing to draw a larger amount from their retirement accounts. However, doing so usually means that the savings they once thought would be enough to carry them all the way through and into retirement might not be enough. Fortunately, developing a comprehensive financial plan means evaluating your current and future financial state and tax burdens in order to best plan against any such surprises.

Estate Tax Planning

For our advisors, a comprehensive look at estate planning involves the development of unique strategies for both the protection of your assets as well as a reduction of your estate taxes. When it comes to planning for the distribution of your estate after you’re gone, many people don’t consider that the process of posthumously transferring their assets to their loved ones could impose upon them an unexpectedly large tax bill. With that in mind, we help you set up your estate plan in such a way that will minimize any of the possible tax burdens that your beneficiaries may end up facing in the future.  If you are a beneficiary, we advise and help you achieve strategic inheritance tax planning.

Tax-Aware Investing

We consider the impact an investment will have on your tax situation. Unfortunately, while taxes are inevitable, they can also be a considerable drag on an investor’s returns.

As financial planners and tax advisors, we provide tax planning services and tax optimization strategies for individuals, corporate executives, and small businesses.  We help you manage taxes effectively, both for the short and long term.

Note: FFA does not provide legal or tax advice.