How Can a Financial Advisor Assist Me with Lowering Tax Liability for Retirement?
There's no way around it - with income comes taxes, and investment incomes are no different. As your portfolio grows into retirement, it’s important to consider your pre-tax and post-tax retirement incomes, and how future tax liabilities may impact your overall retirement strategy. If you’re working with a savvy financial professional, they will consider these factors when building your plan.
You should look into getting professional help with tax planning long before you retire. The U.S. tax code is thousands of pages of legislation, court rulings, and legal interpretations. And if you’re a high net-worth individual, you’re more likely to pay higher taxes. Luckily, working with both an experienced financial professional and a qualified tax professional can help minimize taxes owed both before and during your retirement years. So don’t leave tax planning to the last minute!
A CPA can help you minimize tax liabilities when filing your returns, but there are other planning strategies that need to be done in advance in order to position your future retirement income sources for minimal tax hits. Here are a few ways that a financial advisor may be able to help you plan properly to mitigate taxes as you move towards and into your retirement years:
Dividends
One of the most common ways to reduce taxes is dividends. Since corporate dividends are paid from after-tax business income, governments typically tax them at a much lower rate than salary or hourly wages. If you are self-employed, you will likely have a few options to move money from your business to your personal accounts.
This can be complex, and depend on where you live and work. A qualified financial planner or tax planner will have up-to-date information, along with a knowledge of the relevant laws and conventions in your area. Your financial professional will determine what applies to you, and can help structure your affairs to earn dividends instead of a salary.
Charitable Giving
Charitable donations are another common vehicle professional financial planners use to reduce taxes. Giving to nonprofits is an honorable thing to do, but it also reduces your tax burden. Tax-conscious investors will often donate their securities directly to an organization; a strategy that may offer many benefits. Be sure to explore these options with your planner. If you have a charity or NGO close to your heart, consider contacting their “planned giving” or legacy advancement offices.
Estate Planning
Estate planning is one of the most important aspects of tax planning at the professional level. Depending on where you live, the “death taxes” you may owe after passing could be quite high, but there are many strategies to minimize taxes at the estate level. Family trusts, foundations, and other corporate structures are often used by financial planners to lower estate taxes, sometimes significantly.
There are countless ways to reduce your tax payments. Your life is bound to change over the course of your working life, and a financial professional can help tailor your plan as needed.
Whether you have millions or very little, there is a real benefit to professional advice for tax planning. A great financial planner can help you grow your savings and retain more of their value at tax time. Taxes can make an enormous difference in your post-retirement income, so it pays to get advice that may help you achieve more in retirement.
Distribution Planning
An often-overlooked aspect of tax planning for the retirement years is distribution planning. While you may have saved a great nest egg in multiple retirement savings vehicles, taking an income from these buckets can be more complex than just filling out a couple of forms. The order in which you pull money from various retirement accounts can have a significant impact on the amount of taxes you will pay.
For example, let's say you have retirement savings in a Roth IRA, a Traditional IRA, and a cash-value whole life insurance policy. Withdrawals from your traditional IRA will count towards your Provisional Income (PI) for your Social Security benefit, but money drawn from the Roth IRA and the life insurance policy will not. This means that taking too much money from your traditional IRA in a given year could increase the amount of your Social Security benefit that is subject to tax, thereby increasing your taxes and reducing your Social Security income in that year. However, if you manage your distributions properly, you may be able to pay less (or even potentially zero) taxes on your Social Security benefit, which can be a big deal, especially if managed correctly over the course of your retirement years.
This is just one of the many ways in which proper distribution planning can reduce (or in some cases even eliminate) taxes in retirement. Working with an experienced financial professional who is well-versed in distribution planning with regards to taxes can be extremely beneficial.
Want to discuss these options and make sure you're optimizing your retirement plan from a tax standpoint? Reach out to our office for a free retirement tax & distribution planning strategy session!
Sources:
https://www.investopedia.com/terms/p/provisional-income.asp
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2025 Advisor Websites.