Tax Planning Isn't Just for April: 5 Year-Round Strategies to Protect Your Retirement

Even the great Albert Einstein was said to have found taxes confusing. He reportedly told his accountant, "the hardest thing in the world to understand is income taxes." If he found it complicated, it’s perfectly understandable why so many people feel overwhelmed by the annual ritual of filing by April 15th.

But what if we stopped thinking about taxes as a once-a-year chore?

Successful tax planning isn’t about scrambling to find receipts in the spring. It’s a year-round strategy that should be woven into your comprehensive financial plan. It's about being proactive, not reactive. Thinking this way helps ensure you aren’t leaving your hard-earned money on the table for the IRS.

Here are five key tax planning ideas we should be thinking about throughout the year.

1. Make Retirement Tax Planning a Year-Round Priority

When you’re saving for retirement, taxes play a huge role in your long-term success. Instead of just focusing on it during tax season, we need to treat it as a strategic priority all year. This involves asking questions like:

• Should you be maximizing contributions to your 401(k), or does contributing to an IRA make more sense for your situation?

• If you’re nearing or in retirement, are you taking advantage of catch-up contributions to boost your savings?

• Have we planned for when you’ll need to take Required Minimum Distributions (RMDs)—the withdrawals the IRS requires you to take from most retirement accounts after a certain age?

• How will your Social Security benefits be taxed, and how does that fit into your overall income picture?

2. Use Tax-Advantaged Strategies to Your Benefit

It’s always worthwhile to consider all the financial tools and structures available to you. Some accounts are designed specifically to give you a tax advantage.

• Health Savings Accounts (HSAs): These are a powerful tool, offering a triple tax advantage: your contributions are deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

• Roth Contributions and Conversions: Making contributions to a Roth 401(k) or Roth IRA can provide you with tax diversification in retirement, meaning you’ll have a source of tax-free income to draw from. A Roth conversion, where you move money from a traditional IRA to a Roth IRA, can also be a powerful strategy for managing taxes over the long term.

• Backdoor Roth IRAs: For high-income earners who may be phased out of direct Roth contributions, a backdoor Roth IRA strategy can be a viable alternative.

3. Manage Your Investment Taxes Strategically

Your investments shouldn't exist in a vacuum. They need to be actively managed from a tax perspective. This is a good time to review your portfolio to ensure it's properly diversified across different asset classes and optimized for tax efficiency. We want to make sure your investments are working for you in the smartest way possible.

4. Build in Flexibility for an Unknown Future

Tax laws are not set in stone; thresholds and rules change over time. A rigid financial plan can be broken by unexpected legislative changes. That’s why we need to remain adaptable, considering multiple scenarios and monitoring for any major policy shifts that could impact your financial strategy.

5. Think About Your Legacy

Effective wealth transfer planning is about more than just understanding the current tax thresholds. It’s a holistic process that blends your estate plan, tax efficiency, and long-term goals for your family’s wealth. This is also where we can integrate any philanthropic or charitable goals you may have.

Ultimately, just like with every other aspect of your financial life, preparation is the key to success with taxes. These strategies are not one-size-fits-all, which is why it’s so important that we discuss them together to see how they fit into your unique financial picture.