Tax Planning
After-Tax Outcomes Matter Most
A financial plan is incomplete without the full evaluation of all tax consequences, both now and in the future.
Tax considerations entangle near every aspect of your financial life – and traps abound.
Maximizing your after-tax wealth should be the target planning objective. In fact, smart tax planning can be the difference whether or not you achieve your long-term financial goals.
For example, the net worth of many professional families is concentrated in employer retirement plans and IRAs, also known as pre-tax qualified accounts. There is a meaningful future tax liability associated with future taxable distributions from these accounts, the effect of which is an overstatement of your personal net worth. This distortion can lead to over-confidence in your financial position leading to poor financial decisions.
Another example: Roth IRA conversations have become a popular tax planning move among retirees to reduce future tax liability from qualified retirement assets. However, careless Roth conversions can materially increase your Medicare premiums and thus require special tax planning considerations.
High income taxpayers must be especially cautious when executing their investment plans, practicing good asset “location” to keep more of their wealth gains and away from the government.
For business owners, there is no shortage of tax planning risks and opportunities. The business entity form, for example, can impact the degree of income tax planning available to a business owner and becomes an important decision.
Obviously, your tax professional and financial planner should be working in tandem to wring out as much after-tax wealth creation and preservation as possible.