Tax Advisor

Entering retirement is a significant achievement and should be recognized as such. However, this often is a time filled with anxiety, and individuals worry if they did enough or if laws will change that affect the strategy they have in place. 

Whether you are still in your working years or have entered retirement, here are a few items to keep in mind.

For those working on retirement:

  • Take the free money! If you are employed at a company that offers a retirement plan with an employer match, always strive to contribute enough to obtain the employer match. In effect, this is like free money, and over the course of your career, the amount can really add up.
  • Did you know kids can save, too? When preparing for retirement, time is your best ally. Teenagers with earned income can open and contribute part of their earnings to a custodial Roth IRA. The contribution limit is currently the amount of their earned income for the year or $6,000, whichever is less. For an individual in their teens, this allows for decades of tax-free growth.
  • Learn the two-step. For those who are maxing out savings to their qualified plan and currently over the income limits to save to a Roth IRA, the next potential strategy to consider is the “two-step” Roth IRA technique. This two-step process is done by making a nondeductible IRA contribution and then rolling this contribution over to a Roth IRA. This strategy can be complex and has some limitations; be sure to check with your BKD Private Client™ advisor to learn more.

If you are already enjoying retirement, here are a few things to be mindful of:

  • Retirement income considerations:
    • All income is not created equal. When you begin taking distributions in retirement, make a point to be mindful of what type of account the income will come from. Amounts coming from tax-deferred accounts such as a 401(k) are currently taxed at ordinary individual income tax rates, compared to qualified dividends flowing from taxable accounts, which are currently taxed at preferential capital gains rates.
    • Fill up your tax bracket. Work with your tax advisor to evaluate the opportunity to possibly take additional taxable IRA distributions to fully use your income tax bracket, particularly in years with lower taxable income. These distributions can be repositioned in a taxable investment account allowing for potential future growth.
    • Convert it. If you do not expect to fully need to access the funds in your IRA in retirement, consider partial Roth IRA conversions each year. This strategy also will allow you to “fill up” your income tax bracket while moving dollars into a vehicle where it can grow tax-free.
    • Charitably inclined? If you regularly contribute to charities and also are taking required minimum distributions (RMD) from your IRA, consider a qualified charitable distribution (QCD). Using a QCD allows you to satisfy your RMDs while directing up to $100,000 to charitable organizations when certain requirements are met. This provision allows you to meet your philanthropic goals in a tax-efficient manner using pretax dollars. 
  • Income at the margins really do add up. Avoid large fluctuations in income during retirement when possible. Medicare Part B premiums are based on your prior two years of income. Should there be a year with a spike in income, it could affect future premium payments that will be deducted from your Social Security.
  • Keep abreast of tax law changes. Currently, there are significant tax changes being proposed. These changes could affect the best-laid retirement and estate plans. While you can’t plan for every contingency, structuring your retirement savings into a variety of investment vehicles with good tax diversification can help you be prepared for and respond to whatever changes we might see.

Whether you are still working or have already retired, there are several strategies you can use to help your money work smarter, not harder. Intentional planning involving your BKD Private Client team, a CERTIFIED FINANCIAL PLANNER™, and your tax advisor can have a meaningful effect on your income today, tomorrow, and for generations to come. 

If you have any questions or need assistance, reach out to a professional at FORVIS or submit the Contact Us form below.

Download PDF

FORVIS Private Client services may include investment advisory services provided by FORVIS Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by FORVIS, LLP. The information in this presentation should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies, mentioned in this presentation may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax, or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.

Related FORsights

Let's Connect

Subscribe to our content or get in touch with us today

Subscribe Contact Us