October 12, 2024
Looking for ways to help preserve your wealth? Allworth Advisor Dan Rausch, CFP®, introduces 4 tax-savvy strategies.
When it comes to your finances, no one wants to overpay—especially when it comes to taxes. But without a proactive plan, you could end up doing just that. The good news? There are ways to avoid paying more than you should, and it all starts with forward-thinking tax planning.
Here are four common areas where you might be leaving money on the table—and how you can take control of your wealth.
Picture this: You’ve decided to leave your job, maybe for retirement, or perhaps just to pursue something new. Now it’s time to figure out what to do with that 401(k) balance. Sure, leaving it with your employer might be an option, but rolling it into a traditional IRA can often give you more control and potentially better investment options.
But here's the catch—this is where a lot of people make a costly mistake.
If you’re not careful, your employer might send your 401(k) balance directly to you, either by check or an electronic transfer to your bank. And when that happens, they’re likely to withhold 20% for federal taxes1. Suddenly, you’re left scrambling to come up with that missing 20% within 60 days to avoid additional taxes—and possibly even a 10% early withdrawal penalty if you're under 59½.
Here’s how to avoid this: Set up your IRA in advance. That way, you can request a direct transfer from your employer to your new IRA. It’s a small step that can save you from a big financial headache.
We all know estate planning isn’t the most exciting topic. But avoiding it could cost your heirs more than just money—it could cost them time and peace of mind. When assets go through probate, they can be tied up for months and hit with fees that could take as much as 5% of your estate's value2.
One of the simplest ways to avoid probate? A revocable living trust. Setting up a trust allows your assets to bypass the probate process entirely. You stay in control as the trustee during your lifetime, and when the time comes, your designated successor trustee takes over. This ensures a smoother transition, without the delays and costs associated with probate.
Working with an estate planning attorney to create a trust isn’t just about protecting your wealth—it’s about protecting your family from unnecessary stress and heartache.
For many, the goal is to let retirement accounts grow as long as possible. After all, tax-deferred growth is a powerful tool. But waiting until you hit the age for Required Minimum Distributions (RMDs) could lead to an unexpectedly high tax bill.
Here’s why: Once you turn 73, RMDs kick in, and the amount you’re required to withdraw can push you into a higher tax bracket3. For clients who have saved well—think pensions, Social Security, rental income, and brokerage accounts—this added income from RMDs can be significant.
In some cases, it might make sense to start drawing from your retirement accounts earlier—starting at age 59½ when you can avoid the early withdrawal penalty. While it can feel counterintuitive to touch those tax-deferred accounts early, pulling money out before you’re required to might reduce the size of your RMDs later and keep your tax bill manageable.
It’s not about draining your accounts—it’s about strategic, gradual withdrawals that keep more of your money where it belongs: in your pocket.
If charitable giving is part of your financial plan, you could turn your generosity into a tax advantage. Instead of writing a check or giving cash, consider donating appreciated assets—such as stocks or real estate—that have grown in value over time.
By gifting these appreciated assets directly to a qualified charity, you can avoid paying capital gains tax on the appreciation, while still deducting the full market value of the donation on your tax return. This strategy allows you to support the causes you care about while significantly reducing your tax burden.
For those looking to make ongoing charitable contributions, a Donor-Advised Fund (DAF) can be an effective tool. You can contribute to the fund, take an immediate tax deduction, and then decide over time how the money is distributed to charities. Plus, any assets in the fund can continue to grow tax-free until they’re donated.
If you’re over 70½, you can also take advantage of Qualified Charitable Distributions (QCDs), which allow you to donate up to $105,000 directly from your IRA to a charity4. Not only does this satisfy your RMD requirement, but the amount donated won’t be included in your taxable income—another win for your tax strategy.
At the end of the day, no one wants to pay more in taxes and fees than necessary. The key is to have a plan that works for you. Talk to your advisor, accountant, and estate planning attorney to figure out the best path forward.
As a certified financial planner with both tax planning and CFO experience, I understand how complex financial situations require an intentional approach. I’m passionate about educating you to make sound decisions because I understand what’s at stake for you. Wealth management is more than choosing the right investments. It also involves deliberately preserving your wealth, so you feel confident in your tax strategy and family estate plan.
2: https://www.legalmatch.com/law-library/article/the-cost-of-probate-a-state-comparison.html#
3: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
4: https://www.schwab.com/learn/story/reducing-rmds-with-qcds
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