Tax Planning

Tax-Saving Strategies: Why Tax Planning is Important

March 06, 2024

Tax-Saving Strategies: Why Tax Planning is Important

(Part One of our three-part series)

Successfully navigating the minefield of tax planning is one of the most important strategies in creating a comprehensive financial plan. And while your tax returns may be due every April, effective tax planning requires year-round attention. Here are five things you need to know.

  1. It’s a lifetime strategy.
    Being tax efficient is all about minimizing your taxes not only year by year, but over your lifetime and for the next generation. By shifting income, when possible, to years when you are in a lower bracket, you and your wealth advisors can identify when to delay income and when to accelerate income to minimize your tax burden. Coupled with optimally timed tax strategies like charitable donations and Roth conversions, you can reduce your lifetime tax liability even further.
  2. Understand your ordinary income and capital gains brackets.
    It’s a basic but critical starting point: where do you fall within your ordinary income and capital gains brackets? How much room is there within those brackets? Navigating your income and capital gains brackets is a complex process that requires perspective of how your current income and tax rate environment—including anticipated RMDs (required minimum distributions) and capital gains—compare with those in your future.
  3. Protect your heirs.
    Strategic tax planning can help make things easier for your family when you are gone. For example, you can choose to pay tax on behalf of your heirs so that they inherit your Roth IRA tax-free along with the accompanying growth of those funds, instead of traditional taxable IRA funds.
  4. Diversify your tax portfolio.
    Make your portfolio last longer by diversifying its tax character, which increases income and tax flexibility in retirement. Tax planning helps provide more personalized portfolio management. For example, consider how you want to diversify your portfolio or change your investment objective to reduce risk and/or add more portfolio income as you age in a tax efficient way.
  5. Don’t go it alone.
    As you’ll see in our next blog, tax planning is a complex minefield of potential “gotchas” that can rob you of wealth and “gimmes” that you don’t want to miss out on. Turn to a qualified wealth advisor and tax specialist about how to effectively minimize your tax burden and match your portfolio to your needs.

You have questions. We have answers. Here are some common tax planning questions we can address with you:

  • Should I convert my traditional IRA to a Roth IRA?
  • Should I realize capital gains now or later?
  • Can I lower my RMDs? Should I skip my first RMD?
  • Should I delay my Social Security?
  • What’s the best deferred compensation payment strategy?
  • What’s the best time to exercise stock options?
  • How can I maximize my charitable deductions?
  • How can I minimize taxes for myself and my heirs?

Rely on Washington Trust Wealth Management

At Washington Trust Wealth Management, we work with your CPA as part of your financial team to assess the short- and long-term impact of diverse tax strategies to help you make informed financial decisions. We have access to information about your cash flows, portfolio income, and goals that your CPA may not have—and we can get them information during the tax year while it’s actionable. Together with your CPA, we can be tactical in realizing income and paying taxes to minimize lifetime tax liability for you and your heirs.

Next in the series:

Connect with a wealth advisor

No matter where you are in life, we can help. Get started with one of our experts today. Contact us at 800-582-1076 or submit an online form.

Contact us

This document is intended as a broad overview of some of the services provided to certain types of Washington Trust Wealth Management clients. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting, actuarial or tax advice. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, an attorney or tax professional regarding your specific financial, legal or tax situation. No recommendation or advice is being given in this presentation as to whether any investment or fund is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were, or will be, profitable.

Any views or opinions expressed are those of Washington Trust Wealth Management and are subject to change based on product changes, market, and other conditions. All information is current as of the date of this material and is subject to change without notice. This document, and the information contained herein, is not, and does not constitute, a public or retail offer to buy, sell, or hold a security or a public or retail solicitation of an offer to buy, sell, or hold, any fund, units or shares of any fund, security or other instrument, or to participate in any investment strategy, or an offer to render any wealth management services. Past Performance is No Guarantee of Future Results.

It is important to remember that investing entails risk. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. The value of a portfolio will fluctuate based on market conditions and the value of the underlying securities. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss. Investors should contact a tax advisor regarding the suitability of tax-exempt investments in their portfolio.