Does Having a Tax Plan Make a Difference?

By Barber Financial Group

September 30, 2019

Does Having a Tax Plan Make a Difference?

Once upon a time, there were two brothers, Stan and Mike. Both were married and because they come from an entrepreneurial family, both owned their own plumbing businesses.

As they both approached retirement, Stan and Karen decided to use the plan of “hope”. They hoped they had enough money and hoped their yearly tax bill wouldn’t be too high. You see, Stan and Karen didn’t have a tax plan.

On the other hand, Mike and Beth, who were also preparing to retire, worked with a financial advisor and a CPA to develop a tax plan to help maximize their tax reduction strategies after they sold their business and left their working careers behind. The financial professionals made sure they had money in both tax-deferred accounts, like a 401(k) plan and IRAs, along with after-tax savings, like a revocable trust. They also ran scenarios to discover when the best time was for Mike and Beth to begin taking their social security.

In other words, Mike and Beth had a tax plan.

So, Does Having a Tax Plan Make a Difference?

The fact of the matter is you can pay fewer taxes in retirement if you work with a CPA who understands how your various sources of retirement income will be taxed. For example, a common income source that is often disregarded is Social Security and how those benefits will be taxed.

A tax plan can help pre-retirees and those who have already retired fund the type of retirement accounts that will allow the most long-term tax benefit based on your tax situation. Building a tax plan can help realize capital losses to offset capital gains. A tax plan will tell you which IRAs to withdraw from, in what order, in order to pay little or no tax liability.

At the end of the day, retirees have the opportunity to control their taxes during retirement than at any other time of their life. Who doesn’t like to save money year after year on their tax returns? So, what do you think? Do you want to be a Stan and Karen or a Mike and Beth?

Find out 4 Reasons Why Tax Planning is So Important

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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.