Navigating the complexities of personal wealth management requires savvy tax planning strategies. We’ve gathered insights from seven financial experts, including a President of Tax Crisis Institute and a Private Wealth Manager, to share their top tips. From maximizing retirement account contributions to beginning tax planning at the year’s start, these professionals provide valuable guidance for effective tax management.

  • Maximize Retirement Account Contributions
  • Utilize Roth Conversions and Charitable Giving
  • Convert to Roth IRA in Low-Income Years
  • Strategize Retirement Contributions for Tax Savings
  • Time Capital Gains and Losses Strategically
  • Update Financial Goals for Tax Efficiency
  • Begin Tax Planning at Year’s Start

Maximize Retirement Account Contributions

One key strategy in effective tax planning for personal wealth management is to maximize contributions to retirement accounts. These contributions often provide tax deductions and allow for tax-deferred growth, which can significantly impact your long-term financial planning. By investing in accounts like IRAs or 401(k)s, you not only prepare for a more secure retirement but also optimize your current tax situation by lowering your taxable income. This approach helps leverage tax incentives to build wealth over time.

“Maximizing contributions to retirement accounts is the smartest tax move you can make for your financial future.” But to truly reap the benefits, it’s essential to regularly review and adjust your contributions as your financial situation changes.

Dana RonaldDana Ronald
President of Tax Crisis Institute, Tax Crisis Institute

Utilize Roth Conversions and Charitable Giving

My tax tip for people with large traditional IRAs is to look for opportunities to do Roth conversions at the lowest possible tax cost. Recently, I was able to pull off a “tax trifecta” for a particular client.

This client could have used his annual $10k donation to his church to offset taxable income from a $10k Roth conversion each year—a very slow process. Instead, I recommended that he convert $100k to his Roth IRA in a single year. He could offset the taxation on this conversion with a $100k donation to a Donor-Advised Fund in the same year (subject to IRS limits based on AGI), which he can, in turn, use to make the annual donation to his church for the next decade.

Well, that’s a great double play (to mix sports metaphors), but where does the trifecta come in? To fund the Donor-Advised Fund, we transferred highly appreciated stocks from his taxable brokerage account, eliminating a large amount of capital gain!

For any strategy involving multiple steps, be sure to map it out carefully, and seek guidance to ensure you aren’t missing any stumbling blocks or disqualifying caveats.

Lisa MalickLisa Malick
Financial Advisor, Lighthouse Financial, LLC

Convert to Roth IRA in Low-Income Years

One innovative approach to effective tax planning in the sphere of personal wealth management is the strategic utilization of Roth IRA conversions. In years where your income is notably lower—perhaps due to a career change or a period of unemployment—it can be advantageous to convert part of a traditional IRA to a Roth IRA.

Though taxes will be due on the amount converted, the overall tax implication could be less if you’re in a lower tax bracket for that particular year. The benefit comes in retirement—withdrawals from a Roth IRA, including any subsequent growth, are tax-free, providing potential long-term increases in wealth that are immune to future tax rises.

This proactive measure can result in significantly lower tax liabilities over time, particularly when retirement savers anticipate they might be in a higher tax bracket during their retirement years. To implement this strategy effectively, detailed tax planning that complements long-term wealth preservation and growth objectives is absolutely vital.

Andy GillinAndy Gillin
Attorney & Managing Partner, GJEL Accident Attorneys

Strategize Retirement Contributions for Tax Savings

When it comes to effective personal tax planning, one of the most impactful tips I can offer is to maximize your retirement account contributions each year. Taking full advantage of vehicles like 401(k)s, IRAs, and other tax-advantaged plans can create substantial long-term tax savings.

Not only do you get to contribute money on a pre-tax basis, reducing your taxable income for that year, but those funds can then grow and compound tax-deferred or potentially tax-free over decades until retirement. It allows you to build up a larger nest egg compared to taxable investment accounts.

Depending on your income level, you may also be eligible for additional tax credits by contributing to retirement plans. This further reduces your overall tax liability.

For those closer to retirement age, properly structuring withdrawals from various taxable, tax-deferred, and tax-free accounts can help minimize your tax burden in any given year through strategic income planning.

The key is developing a comprehensive plan that considers your current and projected future income levels, investment time horizons, and near- and long-term goals. Don’t just mindlessly shovel money into retirement plans without analyzing the most tax-efficient contribution sources and withdrawal strategies.

By making the most of allowed retirement contributions and tax-advantaged investment vehicles each year over the long-term, you can potentially save tens or even hundreds of thousands in taxes over your lifetime. It’s a no-brainer aspect of tax planning that everyone should prioritize.

Lyle SolomonLyle Solomon
Principal Attorney, Oak View Law Group

Time Capital Gains and Losses Strategically

One invaluable tip for effective tax planning in personal wealth management is to strategically time the realization of capital gains and losses. Managing when you sell assets that have appreciated or depreciated in value can significantly impact your tax liability. For example, if you have investments that have increased in value, timing the sale in a year when you expect to have lower taxable income can reduce the amount of tax paid on those gains, as they may be taxed at a lower rate.

Conversely, if you’re facing a year with higher taxes, realizing losses by selling underperforming investments can offset the gains from better-performing assets, thus minimizing your overall tax obligation. This strategy, often referred to as ‘tax-loss harvesting,’ is not only about reducing taxes in the current year but also about making thoughtful moves that can benefit your tax positions in future years.

Implementing this approach requires careful monitoring of your investment portfolio and being proactive about your tax situation. Regular consultations with a tax professional or a financial advisor who understands the nuances of your financial landscape can help you make informed decisions.

This strategy has been a cornerstone of my tax planning, allowing me to optimize my asset growth by reducing the amount I pay in taxes, thereby maximizing my effective returns. This kind of strategic financial planning is crucial for anyone looking to enhance their wealth management efficiently.

Michael DionMichael Dion
Chief Finance Nerd, F9 Finance

Update Financial Goals for Tax Efficiency

One tip for effective tax planning in personal wealth management is to regularly review and update your financial goals and strategies. As your financial situation and priorities change, so should your tax-planning approach. Reviewing your goals and strategies at least once a year can help you identify any potential tax-saving opportunities or adjustments that need to be made.

Another helpful tip is to maximize the use of tax-advantaged accounts, such as retirement accounts and health savings accounts. These types of accounts offer tax benefits that can help reduce your taxable income and save you money in the long run.

Amira IrfanAmira Irfan
Founder and CEO, A Self Guru

Begin Tax Planning at Year’s Start

Tax planning should start on January 1 to be most effective. Many don’t start thinking about taxes in the current year until November or December.

Although there are strategies that can be implemented, so many opportunities are missed when we wait that long. By starting tax management strategies at the beginning of the year, there is so much more opportunity to make a significant impact.

Sean PolleySean Polley
Private Wealth Manager, Polley Wealth Management