Why Bother with Tax Planning?

 
 

Austin Carroll is a financial advisor at Cornerstone based in Reno, NV. Austin has passed his Series 65 Securities Registration Examination. He helps clients create customized financial plans based on their unique financial goals by addressing topics such as income, investments, and taxes.

 
 

WHY BOTHER WITH TAX PLANNING

So here you are, after years of hard work and planning, you have reached retirement. The idea of endless weekends, quality time with the grandkids, and a life free from the 9 to 5 grind sounds like a dream. But let's take a second to chat about something not-so-glamorous but incredibly important: taxes. That’s right, taxes don't magically disappear when you retire but proper planning can save you a lot of money that doesn’t need to be paid to the IRS. You’ve worked hard, saved diligently, and probably have a nice little nest egg stashed away. The last thing you want is Uncle Sam taking a bigger bite out of it than necessary, right? By planning, you can manage your tax obligations and keep more of your money for yourself. Here’s how you can dodge some common pitfalls:.

 

DIVERSIFYING YOUR INCOME SOURCES

Your retirement income may stem from various sources such as Social Security benefits, pensions, and retirement accounts, including IRAs and 401(k)s. Each income stream is subject to different tax treatments. For example, Roth IRA withdrawals are generally tax-free, unlike traditional IRAs and 401(k)s, which are taxed as ordinary income. Efficiently managing these sources can impact your overall tax liability.

MANAGING REQUIRED MINIMUM DISTRIBUTIONS (RMDs)

At the age of 73 or 75, depending on your birth year, you must begin taking Required Minimum Distributions (RMDs) from your tax-deferred retirement accounts. Failure to comply with RMD rules can result in a steep penalty—50% of the amount that should have been withdrawn. Strategic planning around RMDs can help you meet these mandatory withdrawals while mitigating the tax impact.

CONSIDERING RELOCATION FOR TAX BENEFITS

State tax laws vary significantly, with some states offering more favorable tax conditions for retirees. Factors to consider include the taxation of Social Security benefits, pensions, and other retirement income. Thoroughly researching and understanding the tax environment of your potential retirement destination can provide substantial financial benefits.

 

THE COST OF NEGLECTING TAX PLANNING

Failing to engage in comprehensive tax planning can result in several adverse outcomes. Here are a few examples:

Higher Tax Brackets: Unplanned large withdrawals could inadvertently place you in a higher tax bracket, resulting in elevated tax rates on your income.

Significant Penalties: Neglecting to take RMDs can invoke a severe 50% penalty on the undistributed amount, in addition to the regular tax owed.

Missed Opportunities: Without diligent tax planning, you may overlook available tax credits and deductions, ultimately paying more than necessary.

WHERE TO GO FROM HERE

Our advisors use a comprehensive approach to curate a personalized plan for each client. Our planning includes an in-depth tax analysis to make the most out of their retirement. We want to help you live the retirement you’ve dreamed of through our fiduciary-based financial planning. Call us today at (775)-853-9033 if you’d like to see how Cornerstone could help you.


Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.


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