“I recently completed my tax return for last year. I pay for a service to file my tax return. However, they do not offer any advice on strategies to save tax dollars in the future or how to get my retirement plan as tax efficient as possible. They simply just take my documents and file my return. If my tax preparer does not do this, then where can I find that type of tax-savings planning expertise?” Thank you. Don
Hello, Don. As everyone knows, tax returns are filed for the previous tax year once that year is over. So, for example, most people filed their 2021 tax returns in the early part of 2022. Thus, people who are in the business of filing tax returns do simply that – they file the return based on the information you provide them for that specific year. This makes it too late to do any tax efficiency planning because the tax return is done after the fact.
To do proper tax efficiency planning for a retirement plan, you need to work with a retirement planner and a tax professional with knowledge and experience in ‘tax efficient planning’. Of course, this tax efficiency planning must be done ‘in advance’ to help you become more tax efficient for the current year and/or future years. For example, all full-fledged retirement-planning clients of Hayes Advisory Group have one or two meetings per year to analyze tax planning and to look for strategic ways to make moves to become more tax efficient. The goal is to make the proper, strategic moves each year to get the retirement plan as tax efficient as possible for the client’s future retirement years.
There are many factors and specifics that go into tax efficiency planning. Four of the biggest factors are:
- Projecting income for current and future years
- Analyzing current and/or future retirement income sources and tax events
- Considering and projecting future tax laws and situations
- Determining the proper balance between the three different tax structures your specific retirement assets and incomes need to be allocated for optimal tax efficiency
Ultimately, tax efficient retirement planning comes down to doing macro tax planning instead of micro tax planning. To learn more about this and get your retirement planning questions answered, as well as to gain valuable information and education on all areas of retirement planning, visit the Prepare Institute website (www.theprepareinstitute.org) and find a retirement course or class near you.
Content is for educational and informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should contact your retirement and tax professional before utilizing any of the information in this article.