Does Your Current Financial Advisor Offer In-House Tax Planning & Tax Optimization?

chart about tax optimization

The Importance of an Integrated Tax & Financial Planning Process

Tax considerations make up a significant portion of our financial planning process. Of course, each client is different, and the tax code is extremely complex. There’s no substitute for an in-depth discussion with a tax advisor. However, there’s plenty to be aware of, especially when considering retirement plans.

The financial advisors at Bogart Wealth encounter many different tax situations and have developed just as many long-term tax strategies, working, of course, with our clients’ tax advisors. Often, our financial advisors will arrange to meet with our clients’ tax professionals to help ensure that their financial planning minimizes exposure to tax and tax penalties, while taking full advantage of opportunities created within tax code.

Comprehensive Tax Advice

A common issue we wrangle with is how to determine what the optimal placement of your investments should be, from a tax perspective. All investments are not taxed alike. Cash, bonds and high-turnover mutual fund stocks (held for less than a year) are all taxed at the ordinary income tax rate. If you have gold or collectibles, the tax rate is 28%. Longer held stocks are taxed at a lower capital gains rate. International stocks and funds, which qualify you for the foreign tax credit, may be worth holding, but you can also opt to sell them and write any losses off. In short, tax is an essential consideration for any investment option.

Tax Planning &
Your Retirement Plan

Many of our clients have company stock in a 401(k). There are numerous options available, such as taking an “in-kind distribution” which allows you to pay a lower capital gains rate. You could roll this stock directly into an IRA, or sell it. Each option will have its own tax implications which will need to be considered as part of the larger plan.

Another major factor that has tax implications is your age and timing. If you retire before the age of 55, withdrawing funds from your 401(k) comes with a heavy penalty. There are penalties for withdrawing from an IRA before the age of 591/2. Many sophisticated tax strategies are very effective at optimizing value and minimizing risk, but often include some kind of age restriction. When you should start claiming your social security benefits, as we write about on this site, can be a complicated decision, based in part on timing, age and other factors such as how long you expect to live.

Because tax code often changes, it is essential to be aware of the latest developments. For example, the 401(k) Roth conversion strategy, as we write about below, can greatly reduce the tax burden on rolling over tax-paid money into a Roth IRA – but was only recently made possible in the IRS tax code. For this reason, we advise our clients to stay aware of developments and potential shifts. To this end, we will publish insights and strategic considerations regarding income tax right here.

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