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Tax-Intelligent Financial Strategies to be Grateful For

Tax-Intelligent Financial Strategies to be Grateful For

November 03, 2023

This time of year, gratitude and giving thanks are top of mind. In the world of financial planning, there are specific strategies and tools that we at Rowhouse Financial Partners are thankful for because of the benefits they offer our clients. No matter your income, assets, or situation, there is likely a financial strategy to help optimize your outcomes.

While we use several tax-intelligent financial strategies daily for our clients, here are three ideas that, with the help of a skilled financial advisor, you can be thankful for today and all year round.

Charitable Giving

Tis the season for giving, and charitable giving is also a tax-advantaged strategy to support causes that mean a lot to you while reaping tax benefits by reducing your taxable income. Aside from the traditional cash donations, you can go about charitable giving in several other ways. A few are listed below, but there are many options!

  • Charitable Bequests: Upon your passing, you can include a charity in your will or estate plan, designating a portion of your assets to be donated once you pass.
  • Charitable Gift Annuities (CGAs): CGAs provide a fixed income stream for the donor or beneficiaries in exchange for a lump sum donation. Any remaining assets go to the charity.
  • Donor-Advised Funds (DAFs): Donor-advised funds allow individuals to contribute to a fund and then recommend how the money is distributed to qualified charities over time. DAFs provide a tax advantage and allow for strategic giving.

Tax Diversification

We hear a lot about investment and portfolio diversification, but it's also important to diversify how you pay your taxes. What do we mean by this? In the case of retirement planning, tax brackets and other tax laws may change between the time you are in saving mode versus when you switch to the distribution phase.

Therefore, it's good practice to consider investing in various retirement savings accounts that pay taxes on both a pre- and after-tax basis. This allows you to reap the tax benefits by investing in something like a 401(k) account that will take taxes when it comes time to access your funds down the road. However, what you would pay in taxes on your 401(k) if you withdrew today could differ in the future, so consider also opening a Roth IRA or similar account that deducts taxes upfront. This mix of pre- and after-tax diversification can potentially save you money down the line while making positive impacts on your taxable income now.

Withdrawal Strategies

Since we mentioned the distribution phase, there are strategies there, too! The distribution time of life can feel odd for many people, who have most likely spent decades saving for retirement. When it comes time to access your money, there are withdrawal strategies that you can utilize to continue to be strategic with how you withdraw your funds.

Timing plays a significant role, and while you will be required to take Required Minimum Distributions (RMDs) and Social Security benefits, often delaying or taking out the minimum amounts can help you avoid higher taxes. RMDs and Social Security count as taxable income, so working with a financial advisor can help you properly plan how you will withdraw to keep your tax obligations as reasonable as possible.

These are just a few tax-intelligent financial planning strategies we help clients navigate at Rowhouse Financial Partners. Feel free to set up a meeting to discuss your needs, and we'll happily be your neighborhood resource for money matters.