I think that many taxpayers go through three phases in their taxpaying lives: Stage 1: The career stage. High tax rates. Stage 2: Retirement, prior to RMD and claiming social security. Low tax rates. Stage 3: Retirement after claiming social security and paying tax on RMD. High tax rates. What steps should one take during stage 2 in order to get prepared for stage 3?
We feel this is an area where professional help is the most beneficial. We believe taxpayers need a tax professional who understands the investment strategy your financial adviser is trying to employ. Ideally, they should work together.
During Stage 2, we recommend looking at your retirement accounts. You may consider giving some to charity, or converting your IRA to a Roth IRA. You may be in a position where you could convert some of your money and remain in a low tax bracket and then have assets that are not subject to required minimum distributions later. Overall, there are many strategies, but not one that works for all. The strategy that works best will be tailored to your situation.
The problem we see is many investors are so concentrated on their tax savings that they do not focus on maximizing their return after taxes. For example, we have clients who would rather earn 1% tax free rather than 4% that is taxed at 50%. We feel investors shouldn’t be “taxaphobic.” We recommend you make as much money as you can, while you can, and taxes will take care of themselves.
At Henssler Financial we believe you should Live Ready, and that includes having your investment and tax strategies work in concert. If you have questions our experts are here to help: