Aligning Your Retirement Plan & Goals to Optimize Outcomes
Diligently setting money aside in a retirement savings plan, purchasing investments, and paying down your mortgage should make you feel great about your retirement. It is a wonderful start that you should feel proud of—but don’t stop there.
Envisioning what withdrawing money from your retirement accounts will feel like adds a whole new dimension to your retirement journey. It’s a scary thought for many as they wonder if their money will last, if they’ve made the right decisions, and whether a misstep will be a setback they can recover from.
At REDW Wealth, we work to help our clients plan for their retirement and manage the shift in focus from accumulation to engaging their distribution planning options. A well-rounded retirement plan is achieved by strategic tax planning, carefully constructed timelines, and evaluating a complex array of options that are unique to each plan.
Setting Wealth Planning Objectives
It is a valuable use of time to consider the full scope of the decisions that you’ll need to make as you approach retirement.
The foundation of a proactive plan that achieves your objectives starts with gaining a complete and clear understanding of where you are now, financially speaking. Building a forward-looking plan requires a thorough review of assets held, all obligations, current tax status, and a keen focus on your personal goals, objectives, and risk tolerance.
Retirement Planning Components
A comprehensive retirement plan includes a systematic analysis of all funds that either increase or decrease it. When the elements are looked at concurrently, a trusted advisor can evaluate the impact of various tax, withdrawal, and contribution scenarios to help determine the optimal mix that will be unique to you.
Tax Planning Opportunities
The scenarios below show tax strategies that may help you determine what is appropriate for your situation.
Remember:
Traditional IRA contributions are tax-deductible when they are made. Withdrawals are taxed at your current tax rate at the time they are completed.
Roth IRA contributions are not deductible, so there’s no tax break when they are made, but withdrawals in retirement are tax-free.
- Tax Deferral – Choosing to pay taxes upon withdrawal is a hallmark of a Roth IRA and it can make sense for those who inherit funds, but not always for the client directly.
- Tax Avoidance – When you retire before the required distribution age, harvesting funds by taking them out of a retirement account can enable you to avoid taxation on the funds in certain situations. A trustworthy advisor will help you find the most efficient means of distribution for your situation.
Pro Tip:
In certain laws, Congress gives preference to different types of income. To receive an optimal return, purchasing tax-free Municipal Bonds, receiving long-term capital gains, and qualified dividends are actions that can be included in a portfolio.
- Filing status –A married couple filing jointly with one spouse holding student loans could obtain tax savings when tax filing is done as married filing separately.
- Gift and Estate Taxes – If money isn’t needed by a parent or grandparent, moving funds to a 529 Plan (an investment account for education expenses) can provide a tax benefit for a child or grandchild going to school later.
- Real Estate Taxes – Some individuals can benefit from grouping and itemizing deductions in alternate years. Consulting an advisor may be appropriate if a tax bill due in December could be deferred to land in an itemized year.
Business Tax Planning Opportunities
For individuals who own their own businesses, or did at one time, various opportunities are available to maximize tax savings, allowing retirement funds to grow.
- Entity choices – For those starting a business, REDW wealth advisors can help you select the entity type that is most appropriate for your business.
Did you know?
A Limited Liability Company (LLC) is a type of legal entity. It can be formed by an individual, a partnership, or a corporation.
- Alternative Minimum Tax (AMT) – Many high-tech companies offer founding and critical team members stock options. Clients want to know when it is best to convert their vested options to reduce or avoid the impact of AMT.
- Business tax planning – Providing retirement planning for business owners and employees is a valuable benefit that can attract and retain employees.
Did you know?
REDW Wealth can design, implement, and manage a 401(k) or profit-sharing plan (or both!) for your company. Learn more»
- Income & Deduction timing – Businesses with seasonal cash flow fluctuations may benefit from selecting a non-calendar-year fiscal year.
Social Security Elections & Retirement Planning
Choosing to (or not to) take Social Security income distributions can be a difficult decision. While many articles promote deferring it as long as possible, for some, taking it earlier may be the better choice. Other individuals may benefit by making one election, then switching to another option years later. This scenario may be appropriate if spousal benefits are received, but other situations may also trigger this being the optimal decision.
Timing social security income should not be decided without considering several factors. Structuring your retirement income with varying blends of ordinary income and social security income can result in State and Federal tax liabilities that can offer substantial savings depending on the choices made.
Selecting a Trusted Advisor
Transitioning from a steady paycheck to living off accumulated investments and Social Security can be very stressful. Those who aren’t prepared with a thorough understanding of their income streams and the expected tax outcomes can be at the mercy of their anxiety and may be greeted by unwelcome surprises.
Our trusted wealth management advisors can work with you to plan a future that prepares you to confidently transition into your retirement. Be proactive and contact us today to start aligning your investment style to meet your long-term goals.
Disclosure statement:
Information and instruction shared in the article above from REDW Wealth does not guarantee outcomes or performance or quality of services provided to REDW Wealth clients by REDW Wealth or its employees.
