Should my wife and I speak with a certified financial planner (CFP) or a tax attorney to get ideas on how to make our portfolio tax efficient?
My wife and I are both 61 years old and we both have healthy retirement portfolios. Before required minimum distributions (RMD)s begin, we would like to get ideas on how to make our portfolio tax efficient, such as information on investment moves we should consider and estate planning. Should we speak with a certified financial planner (CFP) or a tax attorney?
Keep it simple:
- Tax deferred money (401k, IRA) - Do Roth conversions each year and spread the tax burden out. Unless it kicks you into another bracket.
- Taxable money - individual stocks with qualified dividends, or stocks with no dividends. Either low(er) tax, or you control the tax.
- Buy rental real estate - you can deduct mortgage interest, property tax, operating expenses, depreciation, and repairs.
- Buy a cash flowing business - write off opportunities and possiblity of getting more income than your public investments.
Don't let taxes make you blind to everything else.
Just my two cents...
Hope it helps!
Not being biased, go to CF® first then get a CPA/tax attorney involved later. A CFP® professional will look at your overall financial picture and tell you what you need to do, whether is to save more for future retirement or start to take steps to minimize future taxation and/or Medicare premium surcharges. Look up my blog on this platform (https://www.investopedia.com/advisor-network/articles/083116/7-key-areas-comprehensive-financial-plan/) to know what a CFP® can offer, a broad overview and strategies to help you tackle most aspects of your financial life; whereas a tax attorney only focuses on one subject, tax.
I must say it’s a great time for you to plan at this age so you can have the time to plan and act. I just wrapped up a comprehensive financial plan for a couple. Because of their pension and inherited assets, they would have paid $5.4 million dollar tax for their 40-year retirement period. By implementing a Roth conversion strategy, it could save them $1.5 million on tax and $40k less on the Medicare premium surcharges. Hopefully that inspires you to plan early and have the best outcome for your retirement. Cheers!
Being a CFP myself, I'm probably a little biased. But CFP's have experience giving advice on tax planning and estate issues and how they might affect all areas of your financial life and goals. The holistic perspective is key to maximizing your financial decisions.
If you're in the market of working with a CFP, visit NAPFA.org, it has a directory to help you find the right planner for you.
Best of luck,
This is an important question. I co-wrote a blog post with a CPA to give some strategies on this topic. The blog post was featured on ETFtrends.com and other financial websites. At the end of this information I also gave you a link about another article I wrote titled "How to Pay Fewer Taxes in Retirement". Hope this information is helpful.
"6 Smart Strategies to Reduce Your Required Minimum Distribution (RMD)"
Saving for retirement and investing in tax-deferred accounts like your 401(k)s and IRAs is extremely helpful to reach your retirement goals. However, once you turn 70 1/2, Uncle Sam definitely wants his share, so he forces you to take withdrawals from those accounts or face a 50% penalty of the amount you should have withdrawn.
If you’ve built up large balances in your 401(k)s, rollover IRAs or other tax-deferred accounts the first thing I would like to say is congratulations. You did a great job of working hard and saving so congratulations to you.
There is a potential problem approaching you that is right around the corner. Paying more in taxes than you have to. The thing to watch out for is getting bumped into a higher tax bracket. What? Let me explain. Now that you have large balances in your tax-deferred accounts and you have other sources of income such as a pension, investment income and Social Security, these are considered regular income by the IRS and will be taxed. These income sources and RMDs could potentially push you into a higher tax bracket. (By the way, let me know if you would like your Social Security to be taxed or not).
Unfortunately, many investors are NOT being educated enough in advance of their 70th birthday to avoid a very large tax bill. With that being said, I asked my friend and CPA, Tom Woulfe from Evans and Woulfe Accounting for his help with co-writing this important message. So, we put together 6 tax-smart strategies to reduce your RMD (Required Minimum Distribution).
Defer Taking Social Security Benefits
Defer taking social security benefits, which results in higher social security payments in future years. Instead, take IRA distributions for living expenses before RMD start when you turn 70 1/2. Then future RMD are lower since the tax advantage accounts’ balances are reduced.
Consider Qualified Charitable Contribution (QCD)
An individual age 70½ or older can make direct charitable gifts annually of up to $100,000 from an IRA to a public charity and not have to report the IRA distributions as taxable income on his federal income tax return.
Roth IRAs do not require RMD, so, consider converting your traditional IRA to a Roth before you reach 70 ½ to reduce RMD in the future. You can choose to convert your IRA assets to a Roth IRA at any time, even in retirement.
Qualified Health savings Funding Distribution (QHFD)
Take an IRA distribution to fund Health Savings Account (HSA) – A HSA if not used for Medical expenses, after age 65, can be used for anything. A QHFD is done by direct transfer from your IRA to your HSA.
Consider Rolling your IRA into 401K before age 69 1/2.
If you have a 401(k)s or 403(b)s you can put off taking RMDs if you’re still working. So, if you plan to keep working into your 70’s you may be able to let your 401(k) or 403(b) accumulate until April 1 following the calendar year in which you retire
Consider a Qualified Longevity Annuity Contract (QLAC)
Consider a Qualified Longevity Annuity Contract (QLAC) in your IRA which would be excluded from RMD calculation. This means that a person can take up to 25% of their overall account balances in their retirement plans but not more than $125,000 and use that money as premium to fund a longevity annuity contract.
Tom Woulfe from Evans and Woulfe Accounting and I have had many conversations to help investors make informed decisions before and during retirement. If you have not been educated about these strategies and you’re at a cross point maybe it’s time for change.
The rules are intricate and not everyone may benefit from each strategy, so it’s wise to consult with a financial advisor and tax professional if you are considering any of these options.
I would like to personally thank Tom Woulfe for his contribution to this important topic. We have been discussing this for a long time, and I greatly value his knowledge and experience.
Founder and President
Thomas Woulfe, CPA, Partner, Evans and Woulfe Accounting
Tom graduated from DePaul University with a Bachelor of Science Degree in Accounting in 1986, and became a Certified Public Accountant in the same year. Tom has over 25 years of accounting and tax experience in large and small corporate environments as well as public accounting. Tom joined Sharron in 2015 to create Evans and Woulfe Accounting, CPA firm.
P.S. Here's the link to the other article I mentioned at the beginning. http://www.commonfinancialsense.com/2018/01/09/pay-fewer-taxes-retirement/
Scott Krase is an Investment Advisor Representative offering Investment advisory services through RCM Wealth Management, LLC, an SEC Registered Investment Adviser.