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5 Smart Moves to Make Before December 31

Tax Planning for Retirees: 5 Smart Moves to Make Before December 31

By Jonathan Thomas, Private Wealth Advisor

Tax season can be a source of stress for many individuals, but with strategic planning, retirees can navigate it with confidence, saving money and avoiding unwelcome surprises. By taking a proactive approach and making informed decisions, retirees can optimize their tax situation. Here are five essential tax moves to consider before the year-end deadline.

Roth Conversions:

For retirees with pre-tax retirement accounts, exploring Roth conversions can be a savvy move. If you believe your current tax rate is lower than what you anticipate in the future, converting some of your funds to a Roth IRA can be advantageous. This decision allows you to pay taxes at your current rate, providing an opportunity for tax-free growth in retirement. This can be particularly beneficial for passing on assets to children, as they inherit a tax-free pool of funds, potentially reducing their tax burden and providing a valuable financial legacy.

Managing Capital Gains/Losses:

In the aftermath of last year’s market fluctuations, it’s essential to carefully evaluate your taxable accounts for both realized and unrealized capital gains and losses. Consider strategically selling investments with gains to offset losses, effectively managing your overall capital gains. This approach allows you to optimize your investment portfolio while taking advantage of potential tax benefits.

Evaluating Medicare Thresholds:

Retirees with incomes above specific thresholds may face higher Medicare Part B premiums. To mitigate this, consider taking steps to lower your income. Strategic planning can help you avoid elevated premiums, ensuring that you make the most of your healthcare budget during retirement.

Consider Qualified Charitable Distributions (QCDs):

For those aged 70½ or older, making Qualified Charitable Distributions (QCDs) directly from an IRA to a qualified charity can be a tax-efficient strategy. This approach not only reduces your gross income but also has the potential to lower your Medicare premium, offering a dual benefit for retirees looking to make a positive impact.

Contribute to a Donor Advised Fund:

Consider contributing to a Donor Advised Fund (DAF) as part of your year-end tax planning. By donating to a DAF, you can receive an immediate tax deduction while maintaining the flexibility to distribute charitable gifts over time. This strategy allows you to support causes you care about while maximizing your tax benefits.

Additional Tips for Retirees:
  1. Start Planning Early:
    • The earlier you begin your tax planning, the more time you have to make adjustments and capitalize on tax-saving opportunities.
  2. Work with a Tax Professional:
    • Collaborate with a tax professional who can tailor a tax plan to your specific needs and circumstances, ensuring a personalized and effective strategy.
  3. Stay Up-to-Date on Tax Law Changes:
    • Tax laws evolve regularly, and staying informed is crucial. Keep abreast of changes by reading IRS publications, visiting the IRS website, or consulting with a tax professional.

Taking the time to plan ahead is an investment in your financial well-being during retirement. By implementing these five tax moves and adopting additional proactive strategies, retirees can minimize their tax liability, maximize their retirement savings, and approach tax season with confidence and peace of mind. Remember, strategic planning is a continuous process, so staying informed and adapting to changes will contribute to long-term financial success.

If you need assistance navigating these strategies or have questions about optimizing your retirement plan, feel free to contact our team at LVW Advisors. We’re here to help you on your journey to a financially secure retirement.

The information contained in this summary is for informational purposes only and any opinions expressed are current only as of the time made and are subject to change without notice. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Any investment advice provided by LVW Advisors is client specific based on each clients’ risk tolerance and investment objectives. This commentary is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. 

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