Understanding What Happens to Tax Planning with Proper Financial Planning
Financial planning is an important tool to determine one’s current financial situation and discover how to achieve short- and long-term goals. With proper financial planning, you can wisely manage your finances and ensure you make the most out of your tax efficient strategies.
Here is what happens to tax planning with proper financial planning.
Reduces Your Tax Bill
Financial planning allows you to minimize your taxable income and reduce your overall tax bill. This can be achieved by:
- Donating to qualified charitable organizations
- Selling off investments that have declined in value
- Contributing to a traditional IRA where your contributions are made with pre-tax dollars
Improves Your Cash Flow
When tax planning is made a priority in your financial plan, you’re able to save money and reinvest in yourself. Financial advisors will guide you and accurately assess the amount of money you’ll save each year to help you fund your lifetime goals.
Lets You Save for Retirement
To have enough money saved up for retirement, it’s vital to look at the benefits of tax planning with proper financial planning now. By starting today, you’ll be able to set up the initial groundwork for an effective retirement strategy that allows you to afford your future financial expenses.
When looking at the future, there are two types of retirement accounts you can begin to utilize to minimize your tax bills. These include:
Both of these accounts will minimize your lifetime tax expenses which allows you to start saving for retirement now. The only difference between the two types of retirement accounts is when the tax advantage starts. For instance, tax-deferred accounts like traditional IRAs and 401 (k)s, tax savings are realized when you contribute. On the other hand, tax-exempt accounts like Roth IRAs and Roth 401 (k)s, your withdrawals are tax-free when you retire.
Additionally, if you have an investment portfolio, you can calculate its after-tax rate and determine the feasibility of it producing the right income throughout your retirement. This will further help you determine whether your investment portfolio is beneficial or needs to be reexamined.
Create Your Financial Plan with Tobin & Collins, C.P.A., P.A.
If you want to evaluate whether you are on the right path towards financial success for retirement, Tobin & Collins is ready to help you. Get in touch with us today to learn more.