Why Proactive Tax Planning Can Save Retirees A Lot Of Their Hard Earned Money

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Like many other aspects of life, being proactive regarding taxes is good. This is an often-overlooked aspect of taxes, as many people passively wait until tax season for someone else to review all the necessary items.

Being proactive about taxes can save retirees a lot of their hard-earned money. Here we’ll explore the logistics of proactive tax planning and how it can benefit you.

What Is Proactive Tax Planning?

So what exactly does it mean to be proactive regarding your taxes? How does it differ from simply filing your taxes each April?

The reality is proactive tax planning is a process that takes place all year long! Generally speaking, taxes should always be a consideration in many aspects of your finances.

The following are some examples of finances where taxes should be considered annually.


We’ve covered asset location before, but as a brief review, it’s a strategy to maximize tax benefits by storing your money in the most tax-efficient manner between your accounts, funds, stocks, etc. This can be broken down into tax-deferred, tax-exempt, or taxable accounts. Keeping your funds in the right location at all times is a smart, proactive move.


Regarding assets, taking stock of your real estate and property concerning taxes is also wise. This is especially true whenever you are looking to sell said assets. You’ll want to be clear on what taxes will be owed on the home and what measures you can take to minimize your tax burden.

A significant number of tax deductions are available for the sale of either a primary or second home. These include selling costs, home improvements and repairs, property taxes, mortgage interest, and capital gains exclusion.

The capital gains exclusion is particularly beneficial, it allows you to exclude $250,000 or $500,000 of capital gains (for single and married/joint filing, respectively) on the profit of your home sale. Work with your financial advisor to see what deductions you qualify for.


With a large chunk of charitable giving typically occurring at the end of the year, tax season may feel a bit out of sight, out of mind. The truth is, it’s still a good idea to keep taxes in mind when it comes to your donations. We’ve previously covered a strategy of “bunching” donations.

With bunching donations, let’s say you usually give $1,000 per year to charity, you could bunch your deductions into one year and give $5,000 to an important cause or fund. Then, you wouldn’t make any donations for the next four years. Using this strategy is a great way to give back just as much as you usually would, just in a different way to be proactive regarding tax planning.


If you are or were the recipient of employee stock options, this is also a piece of your financials you’ll want to look at year-round. First, do you have ISOs or NSOs? Both come with different tax benefits. ISOs generally have a lower tax burden, not taxed until the sale. NSOs are taxed when you exercise them, as well as capital gains when you sell them at a profit.

You’ll also want to remember three critical details about your stock options: the date your company granted you the options, when you exercised them, and how long you hold the shares you receive on exercise before you sell them.

These dates will factor into your taxes, especially for knowing when you can or can’t vest your options and planning for the taxes on the sale of your stocks. Don’t be passive about your stock options; they are a great addition to your portfolio that must be looked at regularly to take advantage of their highest worth properly.


You can also max out your 401k. If you plan well and make enough, maxing out can be a good move. Maxing out your 401k could lower your taxable income and allow your money to compound over the years.

That being said, maxing out won’t always be the right move for everyone. Before utilizing this strategy, you need to feel safe and secure enough with what you’re bringing in with your income. Either way, experts agree you should be proactive and, at the very least, take advantage of a 401k match from an employer.


If you have invested in a Roth account, you may roll your funds through a Roth IRA Conversion.  If you do so, consider these three aspects for taxes:

  • The amount you convert is added to your gross income for the tax year you make the switch.
  • Tax rates range from 10% to 37%, and the conversion could push you into a higher tax bracket.
  • If you are in a higher tax bracket come retirement, the long-term benefits can outweigh any tax you pay for the conversion now.

Rolling over your Roth account is also worth mentioning when discussing proactivity, as doing taxes for it may require a quarterly review.

For example, “if you paid taxes at the beginning of the year, you would need to pay the tax triggered by the conversion when your quarterlies are due. In this example, that would be mid-April (Tax Day). If you wait until the end of the year or when you file your taxes, you could owe penalties and interest.”

Paying penalties and interest unnecessarily wastes your hard-earned money, so plan for taxes when converting your traditional IRA or 401k into a Roth IRA.


Regarding the actual tax season, being proactive here will still be necessary. Be sure to sit down and review your return with your financial advisor. Tax planning takes place all during the year with the aspects we’ve mentioned, but also, of course, it all comes together during tax season when you file.

Pro Tip: Did you know that we specialize in tax planning and preparation?

How Can Investors be Proactive?

If you’re an investor, you’ll still want to evaluate financial and life decisions through a tax-efficient lens. Investors should be well educated on taxes for the types of investments they make- property or just capital gains. Investing is smart, but only if you continue to make it work for you and don't fall behind or get stuck in a tax trap for said investments.

Tax strategy can save you thousands that, with compound interest and savvy investing, can contribute significantly to your nest egg as you enter retirement. Working with a financial advisor with a tax strategy/planning background can help even as an investor.

Get Started Today 

Don’t wait and be passive about your taxes; being hands-on with them will help you to feel more in control of your financial future and to reach your goals. Our financial planners are here to help - contact one of them today!