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Maximize Your Retirement Savings with Strategic Tax Planning & Management

Maximize Your Retirement Savings with Strategic Tax Planning & Management

April 30, 2024

Tax-Smart Strategies are Critical for Holistic Wealth Management

If you're like most of our clients, you're diligently socking away money for retirement in accounts like 401(k)s and IRAs. But simply accumulating assets isn't enough — it is also important to proactively plan to minimize taxes that can severely erode your nest egg over time.

In episode 9 of the Holistic Wealth & Health Podcast, Jason L Smith, the podcast’s host and founder and CEO of JL Smith, talks with Ed Slott, a nationally recognized IRA specialist and tax planning professional, to discuss strategies for keeping more of your hard-earned money.

Why Tax Planning & Management are Key for Retirees

Slott explains that many people fall into the trap of focusing solely on investment returns and asset accumulation for retirement. However, this leaves out a critical piece of the wealth management puzzle — protecting your savings from excessive taxes that can eat away at decades of growth.

"It's not what you make, but what you keep that matters," Slott emphasizes.

With the national debt at historically high levels* and the possibility of significant future tax hikes, retirement accounts like 401(k)s and traditional IRAs that are merely "tax-deferred" rather than tax-free can be impacted. He views these accounts as a "joint partnership with the IRS" that you need a strategy to get out of.

Pay Taxes on the Seed, Not the Harvest Through Roth Conversions

One of Ed Slott's core philosophies is to be proactive about paying taxes on retirement savings at the lowest possible rates, rather than deferring taxes that may balloon down the road. This is where strategies like Roth IRA conversions come into play.

"You want to pay taxes on the seed, not the harvest," he explains. With traditional retirement accounts, you're paying taxes eventually on the entire balance, including all the growth. But with a Roth conversion, you are prepaying taxes based on today's lower rates, with all future growth and withdrawals being tax-free.

As an example, Slott shares how in 2010 there was a limited opportunity for IRA owners to convert to a Roth with no upfront tax bill, paying the conversion taxes in 2011 and 2012 instead. He advocated taking full advantage, locking in decades of tax-free growth.

Medicare, Estate & Charitable Planning Considerations

Ed Slott also covers a variety of other smart tax planning moves tied to life events, including:

  • Doing larger Roth conversions before age 63 to avoid triggering high Medicare premium surcharges
  • For widows/widowers, converting traditional IRAs to Roth IRAs the year a spouse passes away to take advantage of the lower married tax rates
  • Using qualified charitable distributions (QCDs) from IRAs to satisfy charitable intents while avoiding taxation on the withdrawal after age 70.5
  • Roth conversions to reduce the value of a taxable estate subject to estate taxes

The bottom line is that there are many creative, IRS-approved strategies available beyond just deferring taxes on contributions each year. But most investors are likely unaware of these opportunities, and even many financial advisors lack specialized tax planning expertise.

"You need to find an advisor who can help you keep more of your hard-earned money through proper tax planning and layering strategies," says Ed.

A Holistic Approach to Wealth & Tax Management

Proactive, multi-generational planning is key to helping keep more of your life's savings for you and your loved ones.

At JL Smith Holistic Wealth Management, we couldn't agree more with Ed Slott's philosophy of truly comprehensive wealth planning. That’s why in addition to offering tax management services, we take a holistic approach that combines all critical areas of your financial life including financial planning, asset management, protection planning, and legacy planning, to help maximize your wealth and accomplish your specific goals.

Contact the JL Smith team today to get started.