May 16, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 16, 2022 

This Weeks Podcast –Tax Planning Versus Tax Preparation-

Did you know that you can legally and ethically avoid paying unnecessary taxes by working with the tax code? With tax planning, you can avoid tax risk.

Tax preparation is about being reactive while tax planning is about being proactive all year round every single year.


This Weeks Blog –Tax Planning Versus Tax Preparation

One thing that most people are concerned about is their taxes. People work hard for their money and want to keep as much of it in their pockets as possible. However, taxes come along and take a major chunk of your earnings.

Tax Planning Versus Tax Preparation

One thing that most people are concerned about is their taxes. People work hard for their money and want to keep as much of it in their pockets as possible. However, taxes come along and take a major chunk of your earnings.

Today, we’re going to discuss tax planning versus tax preparation.


They’re often lumped into the same definition, although they’re two completely different things. Tax preparation is when you put all of your numbers on a tax form or add it into TurboTax or something similar, and you pay the amount you owe to the IRS.

However, if you’re in retirement and on a strict budget, tax planning works to save you money on the taxes you need to pay.

We recommend tax planning for everyone because it saves you a lot of money.

Tax Preparation Basics

When you have your taxes prepared, it goes something like this:

  • You file your own taxes, use software or hire a CPA
  • Based on the calculations, you pay the taxes for the previous year

In 2022, you’re paying your 2021 taxes. All of the preparation happens the following year after the money is earned, and there’s no real planning involved.

This is where tax planning could have helped.

How Tax Planning Differs

Tax planning happens for the tax year. For example, if you want to save money on your taxes when you file in 2022, planning needs to occur in 2022, not 2023. Tax planning is a proactive approach taken during the year to reduce taxes.

Otherwise, there are only so many ways to reduce your tax burden in April if you didn’t plan for it throughout the year.

For example, let’s assume that you made a ton of money in 2022, received a great bonus and will need to pay a lot of money in taxes. If you engage in tax planning, you may be able to reduce your taxes when you file in 2023 by:

  • Using charitable contributions
  • Roth conversions
  • Etc.

And if done correctly, tax planning can be done over the course of years to reduce your taxes drastically.

Tax Planning Strategies to Save You Money

Reduce Taxes on Social Security

Many people entering retirement don’t understand that they have to pay taxes on their Social Security income. While there are some exceptions to this rule, many of you reading this will still need to pay money to the IRS based on the benefits you receive.

If you make an income in retirement, somewhere around $40,000 for a married couple filing jointly, you will have to pay taxes on up to 85% of your Social Security benefits.

Tax planning can help you reduce your tax burden.

Let’s step back for a moment and consider how people plan for retirement. Many people save for retirement using:

  • 401(k)
  • Traditional IRA

Using these accounts, people plan to supplement their Social Security benefits. However, when you paid into these accounts, you didn’t pay any taxes. You’ll now need to pay taxes when you withdraw from these accounts.

Let’s assume that you take $30,000 out of the IRA per year to supplement your income.

Now, you have $30,000 of income that is taxable and $40,000 in Social Security benefits. Since you “earned” an income from these retirement accounts, you’ll need to pay higher taxes. Utilizing the right strategy, you can move money out of these tax-deferred accounts into accounts where you pay taxes first, but when you make withdrawals in the future, you don’t have to claim the income.

If all you have in income is your Social Security, you’ll:

  • Pay less in taxes
  • Pay less in Medicare premiums

However, tax planning in this scenario needs to take place 5 or 6 years before you plan to retire.

Roth Conversions to Reduce Taxes

Roth conversions are one of the best ways to get your tax-deferred money out of your 401(k) and Traditional IRA and into an account that allows you to have income in retirement but not pay taxes on it.

In fact, using this strategy, most of our clients earn the same or even a higher income in retirement than when working.

But here’s the problem.

  • Tax-deferred accounts mean you pay less taxes now and more taxes when you make withdrawals
  • People assume that when they’re in retirement, their income will be lower, so they’ll pay less taxes
  • Based on this assumption, people think a tax-deferred account is the best option to pay less taxes

The problem is we’re seeing people earn more in retirement than when they’re working, causing them to pay higher taxes because they’re in a higher tax bracket.

And you have to start taking a required minimum distribution (RMD) at 72 and a half due to tax laws. 

Instead, a Roth conversion works like this:

  • Roll pre-taxed money into a taxed account
  • Convert money into a tax-free bucket
  • Reduce your long-term taxes

Let’s assume that you have $1 million in a tax-deferred account. When you convert to a Roth account, you’ll pay taxes on the $1 million. However, the money can now grow tax-free, meaning as the account grows, you don’t have to worry about taxes.

We know that if tax laws do not change, everyone is going to pay higher taxes in 2026.

If you convert to a Roth account, you’ll pay taxes today and avoid the higher taxes that are coming in just a few years.

Tax planning helps you account for all of these factors, save money when you’re in retirement, and have a lot less to worry about as a result. Tax-free buckets are ideal for everyone planning to retire because your money can grow tax-free.

And we have one last tax planning strategy that we must discuss: planning for your surviving spouse.

Planning for Your Surviving Spouse

In 99.99% of marriages, someone is going to outlive their spouse. Of course, there are the rare occasions when spouses pass on the same day, but this often involves a very tragic occurrence. Tax planning for your surviving spouse is not something many people want to think about, but it’s a way to ensure your spouse is financially stable when you’re no longer here.

When you pass, your spouse needs to file as a single person, and this does a few things:

  • Increases tax burden
  • Reduces standard deductions

Setting up a tax-friendly account for your spouse is the best option if you don’t want to transfer money to the IRS. Planning ahead allows you to save your spouse money on taxes and ensure that they have the income necessary to live comfortably after you’re gone.

Work with a CPA or us (click here to book a conversation) to start working through in-depth tax planning to save you and your spouse money on their taxes.

One last thing before you go:

Click here to subscribe to our Secure Your Retirement podcast for more great information on retirement and tax planning.

Tax Planning for Retirement

One of the things we deal with routinely for people retiring or already in retirement is concerns about taxes. People are very worried about their taxes. After all, you’ve worked diligently to build up your retirement, so the last thing that you want to do is give more money back to the IRS.

Luckily, we were able to sit down with Steven Jarvis, a tax professional, to help answer some of the most common questions our clients have about taxes.

But first, we want to cover the many different types of tax planning professionals that you may come across.

Tax Professionals You Might Come Across When Seeking Help

Depending on your situation, there are a lot of options for taxes:

  • DIY software
  • H&R Block
  • Accountant or CPA

If you have uncomplicated taxes, software may be a good option for you. Software is very powerful, but it’s very easy to make a mistake when you go beyond the basics. 

Ideally, you may want to work with a full-service CPA. 

When you dive into tax strategies, a CPA is almost always the best option because they go beyond algorithms.

Working on Tax Strategies

Tax strategies are important, but there are many different aspects. For a lot of people, they feel like taxes are a black box that they put money into without many options available. In fact, a lot of people view their taxes as being painful.

However, working with a CPA ensures that you don’t leave the IRS a tip.

You need to pay every dollar that you owe, but you should never leave the IRS a tip.

When you’re only worried about filing a tax return, this is tax preparation. If you’ve ever gone to an accountant, handed them a stack of papers, and simply waited for a tax document that you can file, this is tax preparation.

However, you always have tax planning to consider. Tax planning allows you to look a year or two ahead, and then find ways to reduce your future tax bill. When you engage in tax planning, you’re not worried about preparing taxes this year, but rather, what you’ll need to pay in the years ahead.

A Deeper Look into Tax Planning

When tax preparation and planning work together, it truly works to your benefit. Tax planning often comes in around November, which allows you to make adjustments at the end of the year to help reduce your tax burden.

Everyone worries about taxes rising in the future.

Roth conversions are a hot topic right now, and they’re a good way to really look at tax planning on a deeper level.

When we’re talking about Roth conversion accounts, these are tax-deferred retirement accounts. Tax planners will consider whether a person’s taxes will rise. For example, will your taxes rise because:

  • Your income rises to a new tax bracket?
  • The IRS decides to increase taxes?

If taxes are never going to rise, your choice doesn’t matter. However, Congress can raise taxes next year, and you might benefit from paying your taxes now at a lower rate than in the future at a higher rate.

How much you convert also needs to be considered on a personal level.

You might want to fill up a tax bracket, but it really depends on your required minimum distributions and other factors.

Often, when people retire and finally draw from all their income buckets, they’ll move into higher tax brackets than they were in during their working years.

Tax Changes That May Come About in the Future

Tax codes are written in pencil, so any predictions on future taxes are just that – predictions. Unfortunately, we’ve seen that in recent months, where each proposed tax bill is altered and doesn’t look anywhere near the same as its original draft.

However, one very important topic to consider is that Congress may get rid of backdoor Roth contributions.


Backdoor Roth contributions offer the option to have pre-tax and after-tax dollars in the same account. As you can imagine, this strategy can be very effective, but proposed changes would disallow this strategy.

Tax strategies allow you to make the best decision for the future based on today’s tax code.

However, an annual review of your strategy is crucial because we are dealing with taxes that can always evolve and change.

Click here to schedule an introduction call to discuss your taxes further.