The Difference Between Tax Prep and Tax Planning
Tax preparation looks backward. It records what already happened.
Tax planning looks forward. It asks what we can do this year, on purpose, to lower what you will pay over the rest of your life.
Your accountant does the first one. We do the second one. You need both.
What We Look At
Roth conversions
There is often a window between the year you retire and the year your required withdrawals begin. During that window your income may be lower than it will ever be again. Moving money from a traditional IRA to a Roth during those years can save a large amount over a lifetime. We map out how much to convert and when.
Required withdrawals start at 73 for most people, and at 75 if you were born in 1960 or later.
Those middle years are usually the cheapest tax years you will ever have.
Once required withdrawals start, the door mostly closes.
How much to convert and when is the whole question.
The tax torpedo waiting at 73 or 75
If you never touch your IRA, it keeps growing. Then the IRS makes you start taking money out, and those forced withdrawals can push you into a higher bracket for the rest of your life.
That starts at 73 for most people. If you were born in 1960 or later, it starts at 75. Either way, planning ahead is the only fix.
Medicare surcharges
Your Medicare premium is based on your income from two years ago. Go one dollar over a line and your premium jumps. These cliffs catch a lot of people. They are avoidable if you see them coming.
The widow’s tax trap
When one spouse dies, the survivor usually files as single the following year. Income barely changes. The brackets get cut roughly in half. Many widows and widowers get a nasty surprise on top of everything else they are dealing with. We plan for it in advance.
Giving to charity the smart way
If you are over 70 and a half, you can send money straight from your IRA to a charity and skip the tax entirely. Most people who could use this have never heard of it.
How We Work With Your CPA
We do not want to replace your accountant. We want to talk to them in October instead of April. Bring us your last tax return and we will show you what we see.
Retirement Planning Advisors, Inc. does not offer legal advice. Please consult the appropriate professional regarding your individual circumstance.
