Iowa Fiduciary tax planning

Iowa Fiduciary Services Part 5: Tax Options

Taxes: One word that strikes fear into the hearts of many. Yet this financial burden won’t be going anywhere soon.  Proper tax planning makes it easier to build your personal finances and afford the things you want. Additionally, by anticipating taxes when you create your financial plan, it’s possible to significantly boost how much money you will have in retirement.

Looking for Fiduciary services in Iowa? The fifth part of services we offer at Johnson Wealth and Income Management is assisting with your tax options as you reach retirement. Understanding tax strategies and managing your tax bill should be part of any sound financial approach. Some taxes can be deferred, and others can be managed through tax-efficient investing (more on this below). With careful and consistent preparation, you may be able to help manage the impact of taxes on your financial efforts.

Here’s a look at how Johnson Wealth and Income Management can help.

Managing Your Taxes

Chances are, you’ve heard of a tax strategy, but you don’t know where to start. Just thinking about taxes might even make you nervous and overwhelmed. Tax strategies have one overriding objective: to increase your wealth. Whether you’ve already filed your taxes this year or are in the middle of tax preparation, here are some tax strategies you should consider discussing with your Iowa Fiduciary:

Tax Investments: The decisions you make about when to buy and sell investments, and about the specific investments you choose, can help to impact your tax burden. While tax considerations shouldn’t drive your investment strategy, consider incorporating these concepts into your ongoing portfolio management process. 

Tax losses: Tax-loss harvesting is a strategy that can help investors minimize any taxes they may owe on capital gains or their regular income. It can also improve overall investment returns. A loss on the sale of a security can be used to offset any realized investment gains. If there are excess losses, up to $3,000 can be claimed against taxable income in the current year, and the rest of the loss can be carried forward to offset future realized gains or income.

Tax-exempt securities: Tax treatment for different types of investments varies. For example, municipal bonds are typically exempt from federal taxes, and in some cases receive preferential state tax treatment. On the other end of the spectrum, real estate investment trusts and bond interest are taxed as ordinary income. Sometimes, municipal bonds can improve after-tax returns relative to traditional bonds. Investors may also want to consider the role of qualified dividends as they weigh their investment options. Qualified dividends are subject to the same tax rates as long-term capital gains, which are lower than rates for ordinary income.

Fund distributions: Mutual funds distribute earnings from interest, dividends, and capital gains every year. Shareholders are likely to incur a tax liability if they own the fund on the date of record for the distribution in a taxable account, regardless of how long they have held the fund. Therefore, mutual fund investors considering buying or selling a fund may want to consider the date of the distribution.

Taking a Fresh Look at Tax Efficiency with a Fiduciary

A Fiduciary duty exists in law when a person or entity places trust, confidence, and reliance on another to exercise discretion or knowledge in acting on behalf of the client. The Fiduciary must knowingly accept that trust and confidence. From income tax planning and consulting to estate and retirement planning, we are here to support you and your family’s financial needs.

Iowa Fiduciary Matthew P. Johnson from Johnson Wealth and Income Management recommends the following two tax-efficient strategies to include in your ongoing retirement plan: 

Contribute to tax-efficient accounts

Take advantage of tax-efficient retirement accounts to help reduce current and/or future taxes. 

  • Your deductible contribution to a traditional IRA may be limited if you or your spouse are an active participant in an employer-sponsored retirement plan, such as a 401(k), and your income exceeds certain thresholds.
  • Traditional 401(k) contributions are made pre-tax, reducing your current taxable income, and are subject to annual contribution limits.
  • Roth IRA and Roth 401(k) contributions are made on an after-tax basis and are subject to annual contribution limits. Roth IRA contributions may be limited depending on your income level.

Diversify your account types

Tax diversification is a strategy that considers the various tax treatment of the investment accounts you will eventually use for income after you stop working. Coupled with a tax-efficient withdrawal strategy, tax diversification could help your assets last longer in retirement. Types of accounts you can use to accomplish this include:

  • Traditional IRAs and 401(k)s offer tax-deferred growth potential.
  • Roth IRAs and Roth 401(k)s offer the potential for growth that won’t be federally taxed if account owners meet requirements for qualified distributions.
  • Brokerage accounts offer taxable growth potential.

Spreading your contributions among different account types may help you reduce your taxes in retirement, whether your future tax rates will be higher or lower than they are now, if you take steps ahead of time to establish different account types for tax diversification.

No matter what issue you may encounter, when you call us, you will have the assurance of working with a professional who is genuinely interested in helping you find a solution. Some of the areas that we provide advisory services on include:

  • Year-round tax planning and consulting
  • Income tax compliance
  • Wealth planning, including estate and gift tax, as well as charitable giving
  • Family trusts
  • Retirement planning and more

For more information on further taxes you need to know in 2022, read our dedicated blog here. 

Final Thoughts 

As tax day approaches (Monday, April 18), you should take the opportunity to look into your tax planning options with your Iowa-based Fiduciary.  By being strategic about the potential opportunities to help manage, defer, and reduce taxes, you could potentially improve your bottom line.

Do you have further questions on your tax options in Iowa? Whether your retirement is decades away or just around the corner, the retirement income advisors at Johnson Wealth and Income Management can provide you guidance every step of the way, and help you learn new ways to improve your tax strategies. 

Contact us here today to learn more. 

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