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Tax Planning

Tax planning is different from tax [return] preparation. Tax planning requires an understanding of how various tax strategies can impact you in the long-term. An example would be converting IRA money to a Roth IRA. When you convert to a Roth you are moving funds from a pre-tax account to a tax-free account however you have to pay the tax in the year you do the conversion. Why would you voluntarily pay tax sooner than you are required to? Well the answer would be if you think you would pay less tax now than you would in the future. There are many factors that go into such a decision and it requires an understanding of your whole financial picture, and the other moving parts that are involved to make a determination if it makes sense. 

There are many other tax planning strategies such as getting after-tax 401k money out of an employer plan and separating it from the pre-tax money while avoiding the pro-rata rule so that you can convert to a Roth IRA, the NUA tax break on employer stock in a 401k, etc. To learn more about various tax planning strategies, subscribe to our monthly Tax Planning eMail.

"The hardest thing in the world to understand in the income tax." -Albert Einstein