Maximizing Your Client’s Tax Plan After Early Retirement

Early retirement tax planning requires significant preplanning, like contributing to tax-advantaged investments that don’t have early withdrawal fees. Tax planning for early retirement means the client will need to save more money earlier in their career path because they’ll need the funds earlier than ordinary retirees, and they’ll need it to last longer than most.

Does Your Client’s Financial Plan Have Room for Early Retirement?

Most people would love to retire early, but few have the means, financial advice, and tax planning strategies necessary to achieve early retirement. In order to actively save for early retirement, the client needs to diversify how and when their savings will be taxed. Doing so can successfully navigate the two major unknowns:

1. How much of the client’s income will be taxable?
2. What will the client’s tax rate be after they retire?

Holistic financial planning includes planning for early retirement if that’s the client’s goal. A lot of people incorrectly assume that when they retire, their money and taxes go into autopilot, but this will get them into trouble with Uncle Sam in the long run. A good financial advisor will be able to identify specific steps the client must take in order to minimize their tax burden and maximize their wealth in retirement.

Does Their Portfolio Permit for Early Retirement?

The client should fund their Roth IRA to the maximum for early retirement. Although they will be taxed on any gains withdrawn before turning 59 1/2, they can withdraw their contributions at any time without incurring penalties. Clients should focus on early retirement tax planning if they:

• Anticipate higher taxes in the future
• Have excess room in their tax brackets
• Could benefit from creating greater deductions now
• Coordinate between their financial plan and tax plan
• Want to eliminate avoidable taxes and penalties
• Need tax distributions from retirement plans

Smart Planning is the Key to Success Early Retirement Tax Planning.

One way to maximize income in retirement is to invest in early retirement tax planning by taking advantage of accounts and investments that don’t have fees for withdrawing early or a tax on distributions from retirement plans.

• Health Savings Accounts (HSA)
• Insurance Cash Value
• Pensions
• Real Estate
• Roth IRAs
• Stocks
• Tax Exempt Bonds
• Tax-Deferred Accounts
• US Treasuries

For early retirement tax planning, you should consider an appropriate blend of tax-deferred and Roth accounts, depending on the client’s current tax bracket.

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For higher tax brackets, there’s a good chance that the client’s tax rate will be the same as it is today or lower during retirement. So it might be a good idea to maximize tax-deferred accounts. Think about dividing retirement savings between tax-deferred and Roth accounts for clients in a middle tax bracket and consider maxing out Roth accounts on clients in lower tax brackets.

Every Situation has its Own Set of Tax Traps

One of the most important parts of early retirement tax planning is having a game plan in place to address any tax traps that pop up as well as any tax advantages you can leverage to the client’s benefit.

• Charitable Gifts
• Healthcare Premiums & Deductions
• Mortgage Changes
• Property Taxes
• Social Security Tax Torpedo

Early retirement tax planning follows the same principles as a traditional retirement plan—minimizing taxes and maximizing funds. Because early retirees will have fewer working years to accumulate wealth and a longer anticipated retirement than most, their plan requires an accelerated pace and scale. To learn more about minimizing the tax on distributions from retirement plans, how to win business through tax planning, or the Tax Management Journey®, schedule a FREE 20-minute call today!

Financial Professional Use Only

The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time of the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.