Blog Written by David Dick, Front Point Wealth Management
Tax season is upon us again and though I am not a CPA and you should take legal tax advice from your CPA. There are a few things that Financial Advisors can do to help when it comes to tax planning. The most common pieces we have all probably heard of are the IRA’s. Traditional and Roth IRA’s. These can be great tools when it comes to building your retirement and one of them could also help when it comes to how much we owe “in” every year.
The 2 main differences between the Traditional and the Roth IRA are:
- The Traditional IRA consist of Pre tax dollars, thus lowering our overall taxable income liability. But once we turn 59 ½ your distributions from the T-IRA are considered taxable as ordinary income.
- The Roth IRA does not give us a Tax deduction with our contribution, but one major bonus is all of our distributions after 59 ½ are considered tax free. Including the earnings we receive from our years of investing.
Okay! So, which do I choose. I’m not throwing a blanket recommendation here, but speaking where we generally would start in a discovery conversation. For the family, or professional, do we have access to a 401K through work and are we taking advantage of the employer match. Let’s assume we are and now we are looking to build on the retirement but we don’t know which is best. (Both are beneficial)
Situation 1: Family or Professional receive a tax return every year, W2’s are at play and we have 401k’s. Here the Roth jumps to mind because in best interest there doesn’t look to be any need for a tax break. And We look to have enough surplus income that we would like to invest for our Future.
Situation 2: Family or professional do not receive a tax return; they typically owe in on their taxes every year. Here we would look to the Traditional (based on salary and revenue that’s generated) to seek additional Tax deductions in effort to reduce the income level. This can be beneficial to add the surplus back to receive the tax deduction while still holding onto our asset for the future.
These are super basic pieces and much more goes into financial planning. I hope this helps to give some level of a starting point if you are new to the work force or have decided to look into your tax planning a little closer this year.
If you read this as a 1099 contractor, self-employed, or a business owner of some level the IRS does allow you to have access to other additional pieces that you may have never heard of, or haven’t quite figured out how they fit into your operations. Reach out to your Financial Advisor every year in January to begin your tax planning. With the use/ help of a good CPA and Financial Advisor you have the ability to utilize the IRS tax codes to your advantage.
Thanks for reading, and I hope your 2023 tax filing goes smoothly!
David Dick II
Owner/Advisor at Front Point Wealth Management, LLC
(918)931-1166
david@frontpointwealth.com
