tax-saving strategies

Retirement 103


It’s never too early to plan for retirement. It may seem obvious, but in retirement your income will usually be less when compared with your working years. That’s why it’s a good strategy to begin saving while you have income. Tax-saving strategies during retirement will also help you keep the hard-earned wealth you accumulated during your working years. At Phelps LaClair, we are highly experienced in designing estate plans with tax strategies that will protect your assets and help to provide for your financial security through retirement. Here are several ways you can save when tax time rolls around.

1. Start early

If you begin to plan your tax strategy on April 15, you will have missed the boat. In order to tax-optimize your retirement income plan, your tax professional should already have your information by the end of the tax year. Your income and expenses may have changed throughout the year, thus affecting your tax position. The earlier your advisor knows your financial picture, the more savings you may be able to earn. By updating your advisors regularly, you will be able to maximize your tax savings.

2. Social Security

You need to understand how Social Security benefits are taxed. It all depends on your provisional income. The benefits are not taxed if your provisional income is less than $25,000 for single filers, or $32,000 for those who are married, filing jointly. Income sources not counted in the provisional income calculation include Roth IRA income, municipal bond income, and certain annuity income.

There are retirement tax-saving strategies you can use to lower your provisional income. If you have a traditional IRA, you can give up to $100,000 to charity as a required minimum distribution (RMD) without that money counted as income. You can also buy a Qualified Longevity Annuity Contract from a traditional IRA or a 401(k) retirement account. That money is ignored when calculating the RMD. If you need cash from a retirement account, you can withdraw it tax-free from a Roth IRA.

If you have taxable income from dividends, capital gains, or interest income that pushes your provisional income above $25,000 or $32,000, you can consider moving taxable income into growth-oriented investments. These investments will often generate less taxable income—potentially keeping your provisional income below the set amounts for your filing status—thus keeping your Social Security benefits from being taxed. Every situation is different, so ensure that you have a tax advisor who understands the complete picture of tax regulations.

3. Know the IRA differences

Contributions to a traditional IRA or 401(k) are tax deductible. Withdrawals, however, are counted as taxable income. Before making a withdrawal, you need to consider how and when to do it. The two strategies mentioned above are examples of how to save on your tax position. There are others that a competent tax advisor can suggest.

With a Roth IRA, contributions are not tax-deductible, but the withdrawals are. The money you spend on investments into a Roth IRA will be taxed. However, the Roth IRA offers tax-free growth of the investments, as well as tax-free income when you withdraw in retirement.

You can convert a traditional IRA into a Roth IRA. You will be taxed on the amount you convert, but the investment will grow tax-free and be available tax-free when you need it later on. A slow conversion over a period of years can mean better tax efficiency and more wealth in retirement. This is a long term strategy.

4. Diversify

A Roth IRA can be funded with the most aggressive portfolio assets because it has the most potential for tax-free growth and withdrawal.

A traditional IRA has the most flexibility for asset management because you can buy and sell without being taxed until you make a withdrawal.

If you want to buy long-term investments, holding them in a trust can be a better strategy because they will be stepped up in cost basis when you pass away.


Estate planning for taxes

At Phelps LaClair, we have 4 decades of experience in estate planning for the best tax advantages for your estate. Our tax-saving strategies are proven to be effective in protecting the wealth you have acquired. We welcome you to call for a consultation. We have offices in Chandler, Mesa, Phoenix and Scottsdale. Your first consultation with us is a free, no obligation opportunity to discuss your needs and desires for estate planning. It’s never too early to plan!



Images used under creative commons license (Commerical Use)  04/15/2020  Image by Steve Buissinne from Pixabay

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