Tax planning is a part of our process and is always top of mind in all of our client recommendations across all areas. While we don’t let tax issues dictate our recommendations, we certainly take tax considerations into account when and where appropriate.
Incorporating tax planning into the range of issues on which we provide advice to our clients helps us ensure that we are maximizing the benefits of this advice by not causing our clients to needlessly pay additional taxes on moves we suggest to them.
For example our investment management process takes tax-related issues like asset location into account. This involves which types of assets to hold in taxable accounts versus in retirement accounts like an IRA. We try to keep the most tax efficient investments in taxable accounts with less tax-efficient holdings in retirement accounts when possible.
Where appropriate, we use tax-efficient index funds and ETFs to minimize taxable distributions in taxable accounts. We review client accounts and look for opportunities for tax-loss harvesting and for harvesting capital gains on a strategic basis as part of the rebalancing process.
Retirement withdrawal strategies
Tax planning is a critical part of planning a retirement withdrawal strategy as well. We look at our client’s tax situation and take the implications of withdrawals from different sources into account. The coordination and timing of payments from sources such as pensions, Social Security, any required minimum distributions and others are all taken into account in designing the withdrawal strategy.
As part of this process, we look at whether doing a Roth conversion makes sense for a client. This is a multi-faceted analysis that takes into account our client’s current year tax situation, the opportunity to reduce future RMDs and the need for tax-diversification among the assets in their retirement accounts.
Many clients don’t realize the potential impact of taxes in retirement, we make minimizing taxes wherever possible a key part of the retirement planning process.
Charitable giving is done with tax considerations in mind. Often this involves gifting appreciated securities to provide both a tax deduction and avoiding capital gains taxes. Strategies like qualified charitable distributions may be recommended to clients who are taking or approaching their required minimum distributions. Charitable gifts of appreciated securities are combined with the rebalancing process to reduce the taxable income generated when possible.
Working with tax professionals
While we are knowledgeable in various areas of managing taxes around the financial planning we do for our clients, we realize that we are not tax professionals. This is why we partner with tax pros to help us help our clients when needed.
We partner with our client’s tax professionals as well to ensure that our advice is consistent with the tax planning advice they are receiving from them. Coordinating our efforts with theirs when possible makes for seamless and consistent tax planning advice for our clients.