Frank Legan Advisors at Cedar Brook Group

What to Think About When Considering Tax Planning Opportunities

What to Think About When Considering Tax Planning Opportunities

By Dayna Smith 

Planning for a bright financial future is a multifaceted endeavor that extends beyond managing your day-to-day expenses and investments. A crucial aspect is crafting a robust and ongoing tax strategy. 

The foundation of a strong financial future involves continuously reducing your tax bills, understanding the intricacies of tax rules, and making smart financial decisions. Let’s delve into the key elements you should consider in planning your taxes.

Ongoing Tax Strategy

When you’re committed to reducing your tax bills, an effective ongoing strategy is key to keeping more of your hard-earned wealth within your hands. This requires staying informed about tax law changes, deductions, and credits that could apply to your situation. Tax laws are dynamic, and last year’s smart tax move may not be as advantageous this year. Up-to-date tax knowledge empowers you to make informed decisions regarding your income, investments, and deductions. Understanding the tax implications of your financial actions can also help you optimize your savings.

Tax planning is not just an annual task; it’s an ongoing process that should adapt to your evolving financial situation. You’ll want to continuously reduce your tax liability year over year. This could look like regularly reviewing your income, expenses, and investments, to help identify tax mitigation opportunities. 

When you aren’t trained to seek out opportunities to reduce your tax bill, you could miss potential savings. Consult with a tax professional or tax-informed financial advisor who can provide guidance tailored to your specific situation. They can help you navigate the complexities of the tax code and identify tax savings opportunities.

Tax-Efficient Retirement Planning

There are three main areas of focus to consider when planning for a tax-efficient retirement: 

  1. Stress-test the plan: Even after going through the trouble of creating a retirement plan that fits your desired retirement life, there’s still the matter of stress-testing to feel confident it’ll work. Think of it like doing a trial run after rearranging your budget. It helps reveal any shortcomings between the plan and reality. The stress-testing process helps you determine if you’ve saved enough to retire comfortably without facing unnecessary tax burdens. 
  2. Maximize tax-deferred accounts: Contributions to tax-deferred retirement accounts like 401(k)s and IRAs can significantly reduce your current tax bill. By contributing the maximum allowed amount each year, you not only save for retirement but also reduce your taxable income.
  3. Consider withdrawal tax implications: When you retire, the way you withdraw money from your retirement accounts impacts your tax liability. Consult with a financial advisor to develop a withdrawal strategy that minimizes taxes while providing for retirement needs.

Health Savings Account (HSA) Contributions

Health savings accounts (HSAs) offer triple tax savings. Contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. To make the most of your HSA, consider the following:

  • Contribute annually: Make annual contributions to your HSA to build a substantial fund for future medical expenses. Any unused funds can be rolled over from year to year, providing a tax-advantaged way to save for healthcare costs.
  • Stay updated on contribution limits: The annual contribution limits for HSAs can change, so it’s essential to stay informed about these limits to maximize your tax savings.

Flexible Spending Account (FSA) Contributions

If your company offers it, you may also want to consider utilizing a FSA (flexible spending account). Although a “use it or lose it” account, it can be used to pay medical and dental bills you’re already paying and also get a tax deduction. You can contribute up to $3,050 annually per employer.

A Dependent Care FSA (DCFSA) is another “use it or lose it” account that allows you to pay for eligible dependent care services such as preschool and summer day camps, before/after care programs, child or adult daycare with contributions made pre-tax. You can contribute up to $5,000 annually and withdraw money tax-free for qualified expenses. 

Wealth Transfer Via Roth IRA

Roth IRAs are a popular choice for wealth builders who prefer to pay their taxes up front instead of at withdrawal. Roth IRAs provide a unique opportunity for wealth transfer without the burden of required minimum distributions (RMDs) in retirement. Here’s how to make the most of them:

  • No RMDs: Unlike traditional IRAs, Roth IRAs don’t require you to take RMDs after a certain age, allowing your investments to continue growing tax-free until you need it.
  • Tax-free withdrawals: After age 59½, you can withdraw funds from a Roth IRA tax-free, making it an excellent vehicle for passing wealth to heirs.
  • Consider impacts of the SECURE Act: Keep an eye on changes in legislation that may affect your retirement planning, such as the SECURE Act, which has implications for retirement account inheritances.

When you’re considering using a Roth IRA to transfer wealth to your heirs, it’s wise to consult a financial advisor ahead of your decision to confirm the best choice for your finances. 

Charitable Contributions Deduction

The Tax Cuts and Jobs Act (TCJA) brought significant changes to the tax treatment of charitable contributions. To maximize your deductions while supporting the causes you care about, consider the following:

  • Navigate impacts of the TCJA: Consult with a tax professional to understand how the changes in this act affect your charitable giving.
  • Plan charitable giving: Plan your charitable contributions strategically to maximize your deductions while aligning with your philanthropic goals.
  • Consider donor-advised funds: Donor-advised funds allow you to contribute assets for charitable purposes and receive an immediate tax deduction while retaining advisory privileges over how the funds are distributed.

While there are plenty of rules to follow when making charitable contributions, the tax benefits of doing so could be helpful to your goals of tax efficiency.

Reviewing Past Tax Returns

As part of your ongoing tax strategy, it’s essential to periodically review your past tax returns. This awareness may also help you stay on track with continuously lowering your tax bill. Collaborating with tax professionals can help you identify missed deductions and credits. Additionally, staying abreast of tax law changes and potential tax law proposals helps keep you ahead of the curve when optimizing your tax savings.

Professional Tax Planning Importance

One of the most critical aspects of a successful ongoing tax strategy is partnering with tax and financial professionals. Their knowledge can help you make informed decisions, stay compliant with tax laws, and maximize your long-term savings. Implementing a comprehensive tax strategy requires the unique attention of a financial advisor to address the moving pieces of your finances such as investments, retirement income planning, and charitable contributions. 

At Cedar Brook Group, our financial advisors are here to help you build your ideal financial future. When you’re ready to plan a tax strategy that makes the most of your opportunities to save, reach out to us at 440-683-9213 or or schedule a complimentary introductory call online!

About Dayna

Dayna Smith is partner and financial advisor at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Dayna is passionate about making a difference in her clients’ lives, providing organization, clarity, and customized solutions so her clients can pursue both their short-term and long-term goals. She strives to go the extra mile and give her best. Dayna serves families and pre-retirees, using The Humanity Factor™ to identify her clients’ values, dreams, concerns, and needs, and create a strong foundation for them to build on.

Dayna has a bachelor’s degree in education with a minor in English from Bowling Green State University. She is a Registered Representative with Caderet Grant, and Investment Advisor Representative with Caderet Grant and Cedar Brook Group, SEC Registered Investment Advisors. She also holds a Life, Health, and Variable Annuities license in the state of Ohio. To learn more about Dayna, connect with her on LinkedIn.

Securities offered through Cadaret, Grant & Co., Inc., an SEC Registered Investment Advisor and member FINRA/SIPC. Advisory services offered through Cadaret, Grant & Co., Inc. and Cedar Brook Group, an SEC Registered Investment Advisor. Cadaret, Grant & Co. and Cedar Brook are separate entities. Please remember that securities cannot be purchased, sold or traded via e-mail or voice message system. Please contact our office at 440.683.9213 should you need assistance in placing a trade. This email transmission and any documents, files or previous email messages attached to it may contain information that is confidential or legally privileged. If you are not the intended recipient, you are hereby notified that you must not read this transmission and that any disclosure, copying, printing, distribution, or any action or omission of this transmission is strictly prohibited. If you have received this transmission in error, please immediately notify the sender by telephone at 440.683.9213 or return and delete the original transmission and its attachments without reading or saving in any manner.

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About Dayna Smith

Dayna Smith 2 (1) (1)

Dayna Smith is a Partner and Financial Advisor at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Dayna is passionate about making a difference in her clients’ lives, providing organization, clarity, and customized solutions so her clients can pursue both their short-term and long-term goals.

Renowned for her unparalleled commitment, Dayna goes above and beyond, pouring her heart and soul into safeguarding her clients’ wealth and supporting them every step of the way. Guided by The Humanity Factor, she delves deep into her clients’ values, aspirations, concerns, and needs, paving the way for a solid foundation on which they can build a prosperous future.

Dayna’s illustrious career began with a passion for education, earning a bachelor’s degree from Bowling Green State University in Education with a minor in English. Her journey in the non-profit sector instilled a strong sense of stewardship for all, further fueling her desire to positively impact the lives of others. Prior to her role at Cedar Brook Group, she gained valuable experience while employed at another esteemed financial services firm in the Cleveland area. Complementing her wealth of experience, Dayna holds vital licenses, including FINRA Series 7 and 66, as well as an Ohio life, health, and variable annuities license.

When she’s not making a difference in her clients’ lives, you can find Dayna spending time with her husband and young children, who take up much of her time! Dayna belongs to Holy Angels Parish and enjoys working out, baking and spending time with family and friends. To learn more about Dayna, connect with her on LinkedIn.

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