Why Tax Planning is an Undervalued Weapon in Your Financial Plan
Let's face it, taxes are a fact of life. But what if I told you there are ways to make them work for you, not against your financial goals? That's where tax planning comes in. As your financial advisor, incorporating tax-efficient strategies into your financial plan is a key towards maximizing your hard-earned money.
Here's how tax planning can be a valuable weapon:
Keeping More Money in Your Pocket: We can review your W-4 form to help you ensure you're having the correct amount withheld from your paycheck. This helps avoid owing a big chunk come tax season or getting a large refund.
Roth vs. Traditional: Choosing the Right Retirement Account: Understanding the tax implications of traditional and Roth IRAs is crucial. Traditional accounts offer upfront tax deductions, but withdrawals in retirement are taxed. Roth contributions are taxed upfront, but qualified withdrawals in retirement are tax-free! We can help you choose the option that best suits your current tax bracket and long-term goals.
Capital Gains Planning: Selling investments can trigger capital gains taxes. By strategically selling assets at different times, we can, potentially, minimize your tax burden and maximize your returns.
Taxable Income and Health Insurance: Did you know your taxable income can impact your health insurance premiums? We can factor this in when making financial decisions to help you ensure you get the most affordable healthcare coverage.
Roth Conversions: Roth conversions allow you to convert funds from a traditional IRA to a Roth IRA. While there may be tax implications upfront, qualified Roth withdrawals in retirement are tax-free. This strategy can be particularly beneficial early in retirement, specifically if you have a large cash or taxable account balance and have not started Social Security.
Net Investment Income Tax (NIIT) Awareness: The NIIT is a 3.8% tax on a portion of your net investment income or the amount your Modified Adjusted Gross Income (MAGI) exceeds a set threshold, whichever is lower. We can help you understand if you might be subject to the NIIT and develop strategies to, potentially, minimize its impact.
IRMAA Surcharge Planning: Income-Related Monthly Adjustment Amount (IRMAA) surcharges are additional costs added to Medicare Part B and D premiums for high-income earners. By proactively managing your taxable income in retirement, we can help you potentially avoid or minimize these surcharges.
Remember, tax laws can be complex, and what works for one person might not be ideal for another. That's why having a financial advisor on your team is crucial. We analyze your unique situation, keep up-to-date on tax code changes, and develop a personalized tax-planning strategy that aligns with your overall financial goals.
Don't let taxes become a roadblock on your path to pursuing financial success. Let's work together to make them work for you!
If you have any questions or want to discuss incorporating tax planning into your financial plan, please don't hesitate to reach out!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Traditional IRA withdrawals from the account are subject to current income tax. Roth IRA withdrawals from the account are tax-free, as long as they are considered qualified. Withdrawals on IRA accounts prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Tax advice not offered by Wealth KC, LPL Financial or affiliated advisors. We suggest that you discuss your specific situation with a qualified tax advisor.