Presented by Kristen Smigelski, CFP®, RICP®

Earning an income comes with taxes, and your investment incomes are no different. As your portfolio grows into retirement, it’s important to consider the difference between retirement pre-tax income and retirement after-tax income. A savvy advisor will consider your future tax liabilities to be an integral part of your overall retirement strategy. After all, it’s the cash that matters!

Wealthy folks typically pay much higher taxes, but they also have access to the best talent to minimize (or even eliminate) your taxes owed. The U.S. tax code is thousands of pages of legislation, court rulings, and legal interpretations. It pays to get professional help to consider tax planning long before you retire. Don’t leave tax planning to the last minute!

One of the most common ways to avoid tax is dividends. Since corporate dividends are paid from after-tax business income, governments typically tax them at a much lower rate than salary or hourly wages. If you are self-employed, you likely have a few options to move money from your business to your personal accounts. A financial advisor can help you structure your affairs to earn dividends instead of a salary. This issue is complex and depends on where you live and work. A qualified financial planner will have up-to-date information along with a knowledge of the relevant laws and conventions in your area.

Charitable donations are another common vehicle to reduce taxes as a professional financial planner. Giving money to non-profits is an honorable thing to do, but it also alleviates your tax burden. Savvy investors will often donate their securities directly to an organization  — this strategy offers many benefits for tax-conscious investors. Be sure to explore these options with your advisor. If you have a charity or NGO close to your heart, consider contacting their “planned giving” or legacy advancement offices.

Estate planning is likely the most important aspect of tax planning at the professional level. The “death taxes” we owe from our estate upon passing can be quite high (depending where you live), but there are many strategies to reduce or avoid taxes at the estate level. Family trusts, foundations, and other corporate structures are often used by financial planners to mitigate estate taxes or at least reduce them significantly.

There are countless ways to reduce or delay your tax payments. 401(k) plans are just the start. Company pension plans and Social Security can complicate things. Your life is bound to change over the course of your working life, and an advisor can help you tailor your plan. 

A professional advisor will help you find the right strategies for you and your family. Whether you have millions or very little, there is a real benefit to professional advice for tax planning. A great advisor will not only help you grow your savings but also protect their value at tax time. Taxes can make an enormous difference in your post-retirement income. It pays to get the best advice to make sure you maximize your hard-earned retirement savings.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.