Reducing taxes is an essential piece in preserving your retirement plan. Tax laws can be confusing, and little mistakes lead to larger tax issues. Each year millions of people overpay in taxes without even knowing it, leading to a lower retirement income. Our financial planners offer retirement tax consulting that pays critical attention to tax liability during every step of your financial planning process to minimize problems and maximize tax deductions.
WHAT IS TAX PLANNING ALL ABOUT?
Tax planning involves taking a pro-active approach to paying taxes.
While it is illegal to avoid paying taxes that you owe, there is nothing wrong with looking at your income and potential deductions in advance so as to pay the least amount of tax possible under the law.
There are a number of steps you can take to reduce your tax obligations, many of which involve saving for retirement, childcare, and medical expenses.
Income taxes on the federal level are a fact of life, and many people also have to pay state and local taxes.
When you make an effort to plan around taxes, you can save yourself money that you would otherwise pay to the federal, state or local governments.
While you may not notice the impact of federal taxes, they are the biggest expense that most families incur in the course of a year.
For example, if you save for retirement, whether in the form of an employer-based program such as a traditional 401k or individual retirement account (IRA) or both, you can save money on taxes.
You don't get a current tax deduction for contributions to a Roth 401k or Roth IRA, however.
Saving in a traditional 401k or traditional IRA reduces your taxable income when you make a contribution, but distributions are taxed.
While a Roth 401k and Roth IRA offers no deduction for contributions, but qualified distributions (including earnings) are not taxed.