CROSSROAD #1: TAX REDUCTION
Eric Scott wrote the book The Five Crossroads to help people understand the issues they will face throughout retirement so they can use it as a guide to avoid problems. The first Crossroad he covers is “Tax Reduction.”
The most important way you reduce your taxes in retirement is to make sure you’re taking advantage of all the credits, deductions and exemptions that are legally available to you. Many individuals believe their CPA is doing everything they can to ensure they pay the least amount of tax possible. However, the majority of CPAs aren’t trained to look forward, they’re trained to look back. That’s what tax preparation is.
Tax planning, on the other hand, looks forward to ways to save you money in the future. It helps identify any areas in which you are creating additional and unnecessary taxation that can be legally avoided. Like RMDs, for instance.
RMDs (Required Minimum Distributions) are required starting after age 70-1/2 from all of your qualified, tax-deferred money accounts, such as 401(k)s and traditional IRAs. There’s a precise calculation and rules about how much needs to be withdrawn out of which accounts. And, if you don’t take the money out by December 31st of the year that the RMD is due, you can get hit with a 50% tax penalty on the money you should have withdrawn in addition to the taxes due! There is no grace period.
By planning ahead to minimize the effect of RMDs, you can potentially save hundreds if not thousands of dollars. In fact, after working with our qualified retirement guides, our clients have seen an average tax savings of $2,000 – $2,500 per year, which adds up to $20,000 – $25,000 over 10 years!
To get the book, go to Amazon.com and search for The Five Crossroads: Unlocking the Secrets to Your Retirement Journey. Or type this quick link into your browser: http://amzn.to/2AYngt3
As always, call Eric Scott Financial at 435.773.9444 if you would like to review your tax situation!