The US tax code is over 80,000 pages long. Because of this, it is no surprise that taxes often feel like a Blackbox. You put numbers in and hope the number that comes out is a refund NOT a tax bill. This is not right! You pay too much in taxes for them to be as unclear and opaque as they often are.
Not only are they confusing, but it’s very possible to face a higher tax bill in retirement than during your working years. Effective tax planning is crucial to ensure that you maximize your income and minimize your tax burden when you retire.
And to add insult to injury, something no one talks about getting older is that as you age, you accumulate tax brackets. By the time you retire, you could easily find yourself navigating at least six different tax brackets! These include:
Federal Income Tax Bracket: Your taxable income determines your federal income tax rate, which can vary significantly based on your retirement income sources.
State Income Tax Bracket: Each state has its own income tax rules, which can impact your overall tax liability.
Capital Gains Tax Bracket: Profits from the sale of investments are taxed at different rates, depending on how long you held the investments and your overall income level.
Federal Social Security Tax Bracket: A portion of your Social Security benefits may be taxable based on your combined income.
State Social Security Cliff: Some states tax Social Security benefits, which can create a significant tax burden if not planned for properly.
Medicare IRMAA Adjustment: Your Medicare Part B and Part D premiums can increase based on your income, adding another layer to your tax considerations.
Our tax planning is designed to open the blackbox so you can see what is actually causing your taxes to go up or down. Once we understand the levers we can pull, we can create a plan to reduce your lifetime tax liability. We incorporate a number of things into our tax planning to help you keep your taxes low today and in retirement.
We achieve this through a range of tailored strategies, including:
Annual Tax Return Analysis: We review your tax return each year to identify opportunities for tax savings and ensure you are taking full advantage of all available deductions and credits.
Annual Roth Conversions Analysis: We analyze the potential benefits of converting traditional IRA funds to a Roth IRA, helping you manage your taxable income and reduce future tax liabilities.
Coordination & Timing of Income Streams: We strategically plan the timing and sources of your retirement income, such as pensions, Social Security, and required minimum distributions (RMDs), to minimize your tax burden.
Asset Location Optimization: We help you decide the best accounts to hold different types of investments, optimizing for tax efficiency. For example, holding interest-bearing assets in tax-advantaged accounts like Roth IRAs.
Charitable Giving Strategies: We develop charitable giving plans that align with your financial goals and maximize your tax benefits, such as using Qualified Charitable Distributions (QCDs) from IRAs.
Navigating the Medicare IRMAA Tax Brackets: We assist you in understanding and managing the impact of IRMAA on your Medicare premiums, helping you stay within lower brackets when possible.
Implementing Strategies to Reduce IRMAA: We provide actionable strategies to help you avoid or reduce IRMAA, such as timing income and Roth conversions effectively.
In addition, tax laws are constantly changing. You have better things to do than reading up on IRS changes to the IRC. That’s our job. We do this to be sure you are taking advantage of every opportunity to reduce your tax burden and avoid penalties. We continuously monitor tax legislation and adjust our strategies to keep you informed and prepared.
Tax planning is an ongoing process that requires careful consideration and expert advice. Don’t let high taxes in retirement catch you by surprise. Contact us today to learn more about our tax planning services and secure your financial future.