Retirement Tax Planning Service in Houston
Retirement tax planning services help future retirees minimize their tax burdens later in life, ensuring retirement income lasts long after retirees leave the workforce. And every tax dollar counts, as the typical taxpayer is behind on their retirement savings.
A retirement tax planning expert can help their clients get back on track for life after work. There are several strategies that can be implemented for this purpose, including:
- Investing in tax-advantaged retirement accounts
- Opening up an additional IRA for a spouse
- Contributing to a health savings account (HSA)
- Establishing a permanent life insurance policy
- Setting up a charitable remainder trust or annuity
- Investing in municipal bonds
- Planning out income around Social Security benefits
Every taxpayer’s financial situation is different, but the above tax planning strategies can be adapted for people of any age and for people at every stage of their retirement savings journey.
Retirement Tax Planning Strategies That Can Minimize Taxes for Retired Workers
There are numerous tax savings strategies designed to help retirees. Those strategies include:
- Investing in a tax-advantaged retirement account – The single most important thing people can do to prepare for retirement is to identify and invest in the right tax-advantaged retirement account. This requires some future casting, because your current and future tax bracket will influence what type of account you should choose.
For example, if you expect to be in a higher tax bracket when you retire, then consider investing in a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars, so you will pay less in taxes now and enjoy tax-free distributions once you reach retirement age.
If the opposite is true and you expect to be in a lower tax bracket following retirement, then a traditional IRA provides a tax advantage because contributions to a traditional IRA account are tax-deferred. You’ll pay taxes when distributions are taken out, and less than you would if you paid out of a higher tax bracket up front.
A retirement tax advisor can also help convert assets from a traditional IRA to a Roth IRA if your long-range tax picture changes. - Starting up a spousal IRA – If there’s only one working spouse in the home, a second IRA may be opened up in the non-working spouse’s name. The couple’s joint income is used to determine contribution limits, which means many households can double their retirement account contributions.
- Contributing to a health savings account (HSA) – HSAs are only used for qualified medical expenses, but chances are you’ll have additional medical expenses as you enter retirement. These expenses can be paid for, tax-free, out of an HSA account.
Contribution limits for 2024 are $4,150 for self-only coverage and $8,300 for a family plan. - Establishing a permanent life insurance policy – Life insurance policies can serve double duty for people who aren’t retiring for a while. Their primary purpose is to provide income to loved ones once the policyholder passes. This income is passed to beneficiaries tax-free.
In addition to providing peace of mind and money to loved ones, some life insurance policies – whole life and universal life, specifically – accrue cash value the longer the policy is maintained. Taxpayers may withdraw money out of a life insurance policy early, on a tax advantaged basis. However, there may be penalties for early withdrawals, so it’s recommended that policyholders consult with a financial or retirement planning advisor first. - Setting up a charitable remainder trust – Charitable remainder trusts allow people to generate income from their charitable giving and provide a large gift once the trustee passes away.
Charitable remainder trusts are funded by the trustee using liquid assets like cash. Part of the interest generated on those assets is paid out to the trustee (or a named beneficiary), while the rest is given to the charity. When the trustee dies, any assets remaining in the trust are given to the named charities. Taxpayers often qualify for a tax deduction during the tax year the trust is funded. Part of this deduction may be carried into future tax years. - Investing in municipal bonds – If you live in a state with a state income tax, or if you’re in a higher tax bracket, municipal bonds represent a simple and tax-advantaged investment. Interest earned on municipal bonds are typically paid out tax-free, and this includes state and local taxes if the bonds are issued from your home state.
- Planning out income around Social Security benefits – Delaying Social Security benefits may improve your retirement tax situation if you have other sources of income to compensate. Doing so will increase your benefits once you start receiving them. Further, Social Security benefits are taxed according to your adjusted gross income (AGI). Retired workers who make more than $25,000 a year ($32,000 for married, joint filers) will have to pay income taxes on 50 percent of their Social Security income. Anyone making more than $34,000 ($44,000 for married, joint filers) will have to pay income taxes on 85 percent of their Social Security income.
Reducing AGI through IRA and 401(k) plan contributions is one way to control your income as you approach retirement. Being mindful of when to liquidate assets is also important, and strategic Roth IRA withdrawals can also help with tax planning purposes, as they are not factored into the Social Security taxation formula.
What to Look for in a Retirement Tax Planning Service
Considering a tax planning service? Your tax planning advisor will have a major impact on how you organize your taxes over the long term, so trust and experience are vital. Here’s what to look for in a tax planner to ensure you get both:
- A certified public accountant (CPA) or certified as an enrolled agent – CPAs and enrolled agents are tax code experts, knowledgeable in how to best leverage tax laws to their clients’ advantage. CPAs can provide a wealth of services beyond retirement planning, including financial planning, estate planning, tax preparation and bookkeeping.
Enrolled agents are tax specialists that can provide representation if one of their clients is audited by the IRS. Many CPAs are also enrolled agents.
Both are required to complete continuing education courses to maintain current knowledge of the Internal Revenue Code. As such, CPAs and enrolled agents are the best qualified to provide retirement tax planning guidance. - Tax accounting experience – At a minimum, your retirement tax advisor should have accounting experience, either as a CPA or enrolled agent. Your retirement tax planning may involve complex business-related transactions that may require the development of more complex tax savings strategies.
- Experience working with small business owners – Businesses are complicated assets that can greatly influence retirement savings strategies. If you own or have interest in a small business, it’s essential that your retirement tax advisor understand the tax ramifications involved.
- Willingness to communicate – Everyone’s tax situation is different, and so is everyone’s post-retirement goals. As such, there’s no one-strategy-fits-all approach to retirement tax planning. You will likely work with your tax and financial advisor for years leading up to retirement, so they should be someone you can easily communicate with.
Three Advantages of Working with a Retirement Tax Planning Advisor
If you are saving for retirement, there are several reasons why it’s easier to do so with a tax planning advisor. Here’s why:
- Tax planning experts can make your retirement income last as long as possible – Having enough money for retirement is important. The primary goal for retirement tax planning professionals is to stretch your retirement income as far as possible and ease those fears.
For example, many clients have an array of investments and assets in their portfolio. A retirement tax advisor can help clients plan their withdrawals and distributions to minimize any tax burdens. - Tax planning advisors can prepare clients for changes to the tax code – Tax provisions are constantly changing. Tax brackets are constantly changing. Contribution limits, income thresholds, and phaseouts are constantly changing. Tax planning experts remain aware of these changes and can prepare their clients before they have negative tax impacts.
- Tax planning services encourage their clients to stay on their savings schedule – Every retirement saving strategy relies on discipline and consistency. By working with a retirement tax planning expert, future retirees are encouraged to stay on target with their retirement savings goals.
Retirement Tax Planning Can Help Make the Most of Retirement
Taxes are complicated, and so is retirement. Together, they are a challenge for many people as they organize their finances for life after the workforce. Retirement tax planning services are there to guide taxpayers along the way, with a variety of tax-saving strategies that ensure you’re prepared well in advance and with plenty of security.
