Midwestern Financial Group I Fiduciary Advisors I Wealth Management


Lower Taxes, Improve Retirement Outlook

Photo courtesy of  Flickr

Photo courtesy of Flickr

Now that tax season is in the rearview mirror and the anxiety that often accompanies it has dissipated, we want to highlight a few ways to reduce your taxes-owed today while meeting your goals of saving for retirement.  The following is a brief list of items up for consideration.  Keep in mind, this short list is not intended to be all-inclusive, but rather serve as a starting point for some things to consider:

  • Increase your 401k (or plan equivalent) savings - By simply deferring more from your paycheck to a company-sponsored retirement account, you will defer paying income tax on your deferrals until retirement or a later date.  
  • Consider an IRA contribution - For those of you without access to a company-sponsored retirement plan, a contribution to an IRA would be worth considering. While the maximum contributions are likely much smaller than what would otherwise be available through an employer, it exists as an available option. 
  • Asset Location & Tax Efficient Investment Vehicles - For those maximizing retirement contributions and saving beyond tax-differed accounts, it is likely you have established or will establish a taxable brokerage account. The income and dividends derived from this account are subject to taxation in the year they are received. In order to minimize the annual tax burden, it would be ideal to utilize tax efficient ETF's and allocate to assets that produce qualified dividends vs. income. Asset location is more of an art than science; blending long-term return goals with taxation.
  • Health Savings Plan - For those with high-deductible health plans, a Health Savings Account (HSA) allows you to defer income to help offset medical bills.  As always, these monies can be invested and at the age of 59 1/2 rolled into a traditional IRA.
  • For business owners seeking to maximize savings while reducing taxation on current income, you may want to explore the feasibility of utilizing a Profit Share Plan and/or Defined Benefit Plan.  We will spare you the long form discussion surrounding these plans for perhaps another blog post.

At MFG, we work with our clients serving in the capacity to reduce taxation over the near and long-term horizon while building wealth. More advanced tax planning strategies - such as those related to estate planning, closely held businesses, and wealth transfer - are not included as part of this blog for the simple reasons of its application being very personal and unique to everyone's objectives.

If you find yourself in a position of wishing there was more you could do to reduce your taxes while saving for retirement, give us a call. 

Midwestern Financial