Tax season is upon us!  We are always looking for and implementing ways for our clients to save on taxes.  The Buttonwood Team implements strategy for our clients to reduce tax bills, leaving opportunity for financial growth.  Additionally, we review and execute strategy so our Family CFO clients are not over-taxed in later years.

Tax Saving Opportunities

Efficient use of current tax law is a fundamental method of saving and growing assets.  The IRS is very friendly when it comes to allowing qualified pre-tax retirement plans.  Whether it be in the form of an employer sponsored plan – 401(k), 403(b), SIMPLE, etc – or an individual plan – I-401(k), IRA, etc – the tax savings opportunities these vehicles provide should not be ignored.  Contributing to a plan on a pre-tax basis reduces current year tax liability. As a result, dollars available for investments are maximized.  For example, if a 25% federal and state income tax-payer were to contribute $10,000 to the 401(k), they would net a ~$2,500 reduction in total tax liability.  Thus, the tax-payer frees up funds for other investments and opportunities.  Furthermore, when contributing and investing in these types of plans, capital gains, dividends and interest are tax-free, allowing for substantial accumulation of wealth without tax burden.

Will I Be Hit With a Bigger Tax Bill Later in Life?

One may ask the question, “If I have all of these pre-tax funds now, what happens to my tax bracket when I retire and start taking Required Minimum Distributions (RMDs)?”  One solution to reduce the tax impact of RMDs is to make them smaller.  To do that, we typically review for Roth Conversion strategies during lower income years (i.e. post-retirement, pre-social security / pension).  If we can fill up these lower-income years (and tax brackets) with IRA to Roth Conversion, tax-payers will pay tax now (at a lower tax rate) and in exchange, reduce the amount of RMDs required later by having a lower account balance.

If you would like to explore the benefits of your own Family CFO coordinating your tax and retirement strategy, contact us today!  Email or give us a call at 816-285-9000.