Don’t Let Your Heartstrings Control Your Purse Strings

In almost every journal entry I write, I include, “I am grateful for…” and list three to four items from my day that reminded me of how grateful I am. Just last night my wife of 10 years, laughed out at loud as she noticed, I had written, “Popcorn” as I enjoyed a bag in the last minutes of the evening after putting our young boys to bed. It is the little things that make life grand, right?

In light of the deep gratitude I experience on a daily basis, here are 8 financial planning action items I’m grateful for. I know my clients feel the same way because of the significant impact these ideas have over time:

1. Automatic monthly savings plans into investment accounts.

I am grateful because these plans create structure and commitment.

2. The proper 401(k) allocation.

I am grateful to help align risk, time frames, performance, and cost with the fund options available.

3. Roth IRAs and Roth 401(k)s.

I am grateful because we are in a historically low tax environment and Uncle Sam has already been paid.

4. Intentional and proactive communication with an Advisor.

I am grateful to help eliminate inefficiencies and “leaking out the back door” with surplus cash flow.

5. The right insurance solution.

I am grateful for financial reassurance.

6. An understanding of where my current savings rate ends up at the end of the road.

I am grateful when I can provide clarity to planning so that my clients know what they are actually saving for.

7. An outside, objective, fiduciary perspective.

I am grateful when a client calls asking about a refinance option, a car purchase, or stock options. Even though I don’t directly manage these decisions, they do have an impact on your financial plan.

8. Non-retirement investment accounts earmarked for future priorities.

I am grateful when clients can save and grow their money, yet still have access to their funds for that next down payment, big trip, or redoing the kitchen.

Yes, I am grateful for buttery popcorn, but more importantly, I am grateful for the motivation and trust of my clients and business partners.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.

Paying taxes is inevitable. The key to being as efficient as possible about how much one pays in taxes requires careful consideration of the big picture. And while many people simply want to know if they can have a tax-free retirement, it really starts with being clear about how and when taxes get paid…and to defining what a “tax-free retirement” actually means. For example, if someone is striving to have income during retirement that is tax-free AT THAT TIME, then there are a plethora of investment and insurance products out there that could help defer taxes on earnings, and potentially, have tax-free withdrawal benefits for some types of accounts. But that doesn’t mean retirement is “tax-free”.

Let’s clarify what a few of the most common types of taxes are:

Income Tax – taxation on earned income can occur on many levels; local, state and federal. The amount a person would have to pay varies greatly on their situation. And, there are various types of tax credits that could affect the amount of taxes that would be paid on income. Any earned income that is deferred into a qualified retirement account generally means that taxes on that income won’t get paid at the time it is earned, but when that income is taken at a later date, during retirement, taxes are paid at that time. The idea that paying taxes on income later, when one might be in a lower income tax bracket, might prove more beneficial. But a) there is no guarantee what the tax rates will be in the future, and b) there may be several other factors with a person’s overall taxation that could affect what is perceived as a benefit. A tax professional is the best person to help folks evaluate what kinds of strategies are best for their overall situation. At the end of the day, SOME form of income tax will be paid, either when it is received upon earning, or when it is withdrawn from a qualified plan “down the road” in retirement.

What can be done to possibly reduce these taxes? Speak to a tax professional about what tax credits might apply, and also review with them if itemized deductions can play a role in reducing taxation.

Sales Tax – taxation occurs on state levels for various goods and services that get purchased. The percentage of taxation is usually based on the price of said goods and/or services. But that percentage charged can vary greatly from state to state, or even within different municipalities. There are a few states that don’t have any sales tax on most goods and services.

Excise Tax – taxation that is applied to specific types of goods; gas, cigarettes, beer, liquor, etc. These are typically nicknamed as “sin products”. Taxes received for these particular products are generally used to help raise money for bringing awareness to the potential dangers of these products.

What can be done to manage sales and excise tax? Not much. These types of taxes are very hard to “manage”. Changes in lifestyle; consumption of goods that fall within this category, will obviously affect the amount of sales taxes paid.

Property Tax – taxation that is applied to property owned. Taxes received tend to go towards local municipality needs. The amount of property taxes charged is usually based on a percentage of the value of the property.

What can be done to manage or alleviate property tax? Renting instead of owning might prove beneficial with alleviating property tax. However, there may be tax benefits also lost by being a renter instead of an owner. Again, a tax professional is best for helping to calculate what the tax benefits are for both scenarios.

It might not be possible to have a completely tax-free retirement, but by working with a financial professional and a tax professional, the ability to strategize investments and manage how taxation occurs could prove very beneficial. It’s not just about saving and investing…it’s about being as savvy as possible with the decisions along the way.