The Importance of Tax Planning

By Paul Manger

July 1, 2020

Importance of Tax Planning, 39% of Retirees Rarely Consider Effects

According to a recently released survey by Nationwide Retirement Institute, 39% of retirees surveyed “rarely consider the taxes they are paying or will pay in retirement.” However, 90% of respondents report feeling in control of the retirement planning process, and 92% of future retirees feel they are financially ready for retirement. While confidence may be high, that 39% not considering taxes are woefully mistaken. Let’s discuss the importance of tax planning and what this survey can tell us about current and future retirees.   

More Survey Data on Tax Planning

We discovered in the survey that confidence is high among retirees and future retirees. However, many aren’t considering the importance of tax planning in their retirement plans. This makes a more sense when we delve deeper into the data. 28% of the respondents agreed with the statement, “I am terrified of what taxes will do to my retirement income.” Among the group of future retirees, 38% agreed with that statement. Furthermore, only 46% of respondents reported they know how to leverage taxable, tax-deferred, and tax-free accounts.

Let’s be real, no one likes to talk about taxes. Nevertheless, they are a fact of life if you live in the United States and are making money or have money. Could it be that many aren’t considering the importance of tax planning on their retirement because they don’t want to open a Pandora’s box of confusing tax decisions? Or is it that many don’t know about strategies to minimize taxes in retirement? Regardless, it’s something everyone needs to consider in their retirement plan.

Thinking Long-Term, Not Year by Year

Only one in eight future retirees said they “Strongly agree that they know how to use tax planning to get the desired outcome during tax season.” While tax planning shouldn’t just consider one year of taxes at a time, it’s no wonder that seven in eight don’t feel confident they’re getting the best outcome each tax season.

Proper tax planning strategies need to consider the lifetime of your retirement and income streams to minimize taxes and maximize retirement income. Those seven in eight are probably focusing on taxes year by year. Therefore, it is not surprising that about 25% of retirees believe they have paid several thousands of dollars more in taxes in retirement than they expected.

You Need to Consider the Importance of Tax Planning

If you’re reading this and fall into the crowd that hasn’t been considering their taxes in retirement because you were unaware, you’re now aware! If you aren’t confident about what you need to do next, keep reading. The first thing you need to do if you haven’t looked into the importance of tax planning in retirement is to find a trusted professional to help you. Many of you may already have a financial advisor and a CPA. That’s great! However, are they working together to make sure your accounts get utilized in the most tax-efficient manner? If not, maybe they need to be in contact.

Most CPAs don’t have the luxury of working directly with the individual planning someone’s retirement and investment plans. Allowing the two to work together to build a plan that best manages your account over time considering the tax impact year over year is extremely advantageous.

Many Factors Involved in Tax Planning for Retirement

Tax planning in retirement carries more importance when you consider just how many factors impact your taxes.

  • Social Security – “But wait, that’s tax-free, right?” Not always.
  • Required Minimum Distributions – “We don’t have them in 2020, who cares.” You should be looking much further down the road than just 2020.
  • Charitable Giving like Qualified Charitable Distributions – “Why can’t I just give money straight to a charity? Why complicate it?” You could be saving yourself in taxes, that’s why!
  • Roth Conversions– They aren’t for everyone, but they may be right for you!

Those are just a few examples. There are also capital gains, the new SECURE Act, Medicare, and more factors that can impact your taxes. The point is, don’t think of taxes as something you’re locked into. Some opportunities present themselves in retirement that can positively impact your plan when taken advantage of. These opportunities arise when your CPA can discuss your goals for retirement with your financial planner.

We Know the Importance of Tax Planning

According to the survey, 57% of respondents said that they prefer talking with a financial advisor to learn about retirement planning. If your financial advisor isn’t discussing tax planning opportunities, you may be with the wrong individual. That same survey tells us that 63% of future retirees are looking to a financial advisor for help with tax planning. And 42% of future retirees would switch financial advisors for someone who can help them plan for taxes in retirement.

The people in the 42% are smart cookies. I don’t know about the remaining 58%, but you should be looking elsewhere if your “financial advisor” isn’t helping you plan for taxes in retirement. 20% of those surveyed said they are currently getting no tax planning advice. That’s a sad thought. No one should blindly overpay their taxes, especially in retirement, when income streams are more complex.

The importance of tax planning really boils down to that question: Do you want to overpay your taxes? If not, what are you going to do about it?

Education is Key

One of the focuses we have at Modern Wealth Management is providing education to those interested in bettering their retirement. We offer workshops and webinars on subjects that discuss the importance of tax planning and more. Our Education Center is full of videos, articles, and downloadable reports on various retirement planning topics, including tax planning. We also have a weekly newsletter that provides you with a new article like this one every Tuesday! You can sign up for that by clicking below.

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Importance of Tax Planning - JoAnn Huber Podcast and Radio Show

Our Founder and CEO, Dean Barber, and Partner, CFP® and CPA, JoAnn Huber, have done a couple of episodes on our podcast The Guided Retirement Show. You can find links to their episodes below. They also recently did an episode on our radio show, America’s Wealth Management Show, called Taking Control of Taxes & Social Security. We encourage you to take give these a listen or watch to learn more about the importance of tax planning.

► IRAs vs Roth IRAs Pt. 1 ► IRAs vs Roth IRAs Pt. 2  ► What Retirees Need to Know About Roth Conversions ► Taking Control of Taxes & Social Security


All Under One Roof

It is important to find trusted professionals to fill in the gaps when educational materials are not enough. Our office is a one-stop shop for retirees. We aren’t your normal financial advisor business. Modern Wealth Management has a team of financial planners, CPAs, estate attorneys, and insurance professionals all working together to maximize your retirement potential.

Our CPAs work directly with our financial planners so that you can stop overpaying your taxes. They develop a plan that considers future years of taxes rather than just one year at a time. The plans they create make sure to leverage tax-free, tax-deferred, and taxable accounts in the most tax-advantageous ways—all with the goal of helping you achieve the retirement of your dreams.

We understand the importance of tax planning better than most. Our CPAs and financial planners have been helping clients navigate the complexities of taxes in retirement for years. We want to help you get to and through retirement and help you pay as little taxes as possible along the way. If that sounds like something you’re interested in, give us a call at (913) 393-1000 or schedule a complimentary consultation below. We will be in contact with you to schedule a conversation.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.