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Weekend Reading: 7 Ways to Prepare for Higher Taxes

Posted:
|Financial Planning |Income |Kiplinger |Tax
This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading higher taxes Weekend reading higher taxes

Weekend Reading

As past podcast guest, David McKnight, says, “The tax train is coming,” and we should all be ready. Experts believe tax rates will increase with each passing year, and on top of that, President Biden has proposed bills that would raise both corporate taxes and the long-term capital gains rate tax for anyone making more than $1 million per year.

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Safeguard your savings: It’s safe to say, tax planning is imperative when it comes to your lifelong savings. This article highlights seven ways to help you plan now, so you’re prepared for whatever tax implications we could see in the future. Some strategies include:

📌Pay attention to where your income is generated: Your money can be divided up into varying 'buckets', all of which are taxed differently. Creating a strategy for when and how you draw money from each bucket can have a huge impact on how much of that money you actually get to keep.

📌Take advantage of today’s lower marginal income tax rates: You don’t truly know what your future tax rate will be, but you do hold some control over your tax environment now in that you know what taxes are today.

📌Consider Roth conversions: Roth IRA contributions grow tax-free. In addition, distributions aren’t taxed as income upon withdrawal, and anything left in the account passes tax-free to beneficiaries upon your passing.

📌Harvest tax losses: Taking advantage of portfolio losses can help minimize taxes owed on capital gains or regular income. By replacing a decreased value investment for a similar investment, you can utilize the investment sold as a loss in offsetting gains.

📌Leverage life insurance: An irrevocable life insurance trust can be utilized to withdraw money from your estate while reducing your future tax bill. You can put the life insurance inside a trust so as not to burden beneficiaries with a future large estate tax.

My thoughts: These are all great takeaways, which is why I shared the article. However, there is a bit of a misstep here you should be aware of. Qualified Charitable Deductions can be made after 70 ½, whether your Required Minimum Distributions (RMDs) have kicked in or not – a myth debunked in a previous Weekend Reading article.
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