TAX PLANNING should be carefully considered before contributing to a financial plan.
When you starting contributing to your retirement, which plan did you choose?
Would you prefer your retirement distributions to be:
Plan #1: Always Taxed
Plan #2: Sometimes Taxed
Plan #3: Never Taxed?
Setting up a retirement plan 20 or 30 years before you plan to start withdrawing money is sort of like a game show where you pick the door without having any idea what is behind it. If you know what your tax rate will be throughout your retirement, your crystal ball works better than mine. When we ask someone if they think taxes will go up in the future or go down, oddly enough, nobody ever says they think taxes will go down. To compound the issue, the tax rules and tax rates keep changing. There may be tax planning options expected to produce better results than the track you are on now given the latest changes in legislation and tax rates. Tax planning shouldn’t be considered a lucky guess, but many people don’t fully understand the future tax consequences of their current financial plan in an ever changing regulatory environment. Everyone has heard that two things are guaranteed, death and taxes. History tells us that taxes and change go hand in hand. Washington DC keeps changing the tax rates and rules which may affect the pros and cons of any given plan. The plans you made 5 or 10 years ago may be outdated and may not take advantage of recent tax code changes.
Tax Preparer vs Tax Strategist
When we bring up the subject of taxes, the most common response is, “I have a tax guy.” That is great because we don’t prepare tax returns. However, are you currently working with a tax preparer or a tax strategist?
A Tax Preparer is someone that reports history to the IRS on the annual tax return. The Tax Strategist is someone that reviews a variety of planning options with the goal of reducing current or future taxes.
A tax preparer can certainly be a tax strategist, yet, not all tax preparers have the experience or training to have a working knowledge of various retirement platforms. In short, it just may not be their field of expertise. Additionally, a CPA or attorney are the two professions that are allowed to give tax advice, however, they are prohibited by law to give investment advice or comment on the viability of a particular life insurance policy unless they also have the appropriate licenses for that particular investment or insurance product. With that said, a tax preparer is often looked upon as the expert in all things that brush up against a tax conversation. However, we shouldn’t expect a CPA to know whether the stock market was going to go up or down tomorrow of if one life insurance policy was better than another one. The CPA is expected to be able to confirm how any particular distribution will be taxed and how that applies to your particular situation. Then there is the barber. The barber is expected to have an answer for all things, right, wrong or otherwise.
In reality, it takes a team of experts in their respective fields to comment on all aspects of any financial plan worth considering. We need an attorney to address legal ramifications, a CPA to address tax implications, and licensed professionals in either investments or insurance matters to comment on the inner workings of the platform in question. At Capital Advisory Group, we have a team of independent third party professionals that we call upon to answer any questions that our clients or their own tax or legal professionals may have. Typically, we offer access to our network of tax and legal professionals to answer questions at no cost to the client.
We do not give legal or tax advice. In other words, we will not tell you what you should do. However, we are allowed to highlight general tax benefits of the plans we offer and encourage clients to discuss specific tax benefits that would apply to them with a competent CPA. We’ll work together to create a cohesive plan with a focus on reducing taxes on your assets.
William Czerkies Jr