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Key Tax Minimization Strategies in Pre-Retirement (Podcast Ep5) Thumbnail

Key Tax Minimization Strategies in Pre-Retirement (Podcast Ep5)

This blog accompanies Episode 5 of The Retirement Oasis Podcast. To listen to the podcast, you can visit your favorite podcast platform (Apple, Stitcher, Podbean, etc.) or go here: 

 Today, we will cover select tax savings strategies that you should consider if you are a few or many years from retirement.  

Taxes are a big expense for everyone, whether it is created from your salary during your working years or from investment income like IRA required distributions in your retirement years.   If we can take any legal opportunity to save taxes during our life, we should consider it.  Less taxes paid equals more dollars in our pocket. This increase in wealth should get us closer to our savings goals and potentially lead to higher fulfillment in retirement.

Your Situation is Unique: Proceed with Caution

Before we dive into specific tax savings strategies, I want to lay the groundwork for helping you think about how to implement these strategies.  And before I do that, I want to say that these strategies may or may not work with your individual situation. Just because they may benefit one person doesn’t mean they will benefit you.  You should always talk to your tax professional about your unique situation before you implement any strategies.

Tax Planning Fundamentals

Having said that, there are some fundamental things to be aware of in tax planning. First, be careful of implementing tax savings strategies by merely looking at your situation in one isolated year. While you will certainly have to know what the intimate details of your tax situation in any one particular year are before implementing that strategy, you should also take into account both the mid-term and long-term situation.  For example, knowing whether to contribute to a Roth or a Traditional IRA or knowing whether to convert to a Roth IRA requires understanding current and future marginal tax rates. I have seen many people make the wrong call by not understanding their long-term picture.

The second fundamental concept in tax planning is knowing your Adjusted Gross Income and Taxable Income amounts. These are two different numbers that show up on two different lines of the tax return and they are labeled as such. These amounts are relevant because various deductions, credits, and tax rates apply based on these amounts. For example, some deductions or credits may be phased out or eliminated if you exceed certain thresholds or alternative taxes may apply only if you exceed certain thresholds.  A lot of planning goes into focusing on those figures in order to obtain the highest tax benefit. 

Another critical point is to know your marginal tax rates. Many of you may know what the marginal tax rate may mean, but some of you likely do not so I will explain it here. Marginal tax rate is the tax rate at which your next dollar earned is taxed on.  As you know, the U.S. tax code is progressive, which means that lower tax rates are applied at lower income levels and as income increases, higher tax rates apply. The current tax brackets are 10%, 12%, 22% and on up to the maximum marginal rate of 37%. These rates could change quickly, of course. The marginal rates are legislated to increase in 2026, but Congress can very well make changes before that date, and I would not be surprised if they do. 

And, to be more precise, knowing your effective marginal tax rate is even better. The is a slightly different concept than marginal tax rate because the “effective” part of this phrase takes into account the interplay of tax rates with other tax ramifications, including deductions and tax credits. We won’t get into that here, but just know that the tax world is a bit more complicated than merely looking at marginal tax rates.

A fourth point I want to make about tax planning is that you should know your goals. Earlier I talked about the need to understand your tax situation over a multi-year and long-term basis.  One can only know this if you understand your short-term to long-term goals. By that, I really mean understanding the goals that have a financial impact, and we know much of our goals do indeed have a financial impact. For example, buying a car can have an impact on investment withdrawals. Or, a planned year of retirement certainly has an impact on future marginal tax rates. Planning to retire and move from a tax-free state to a taxable state or vice versa can have a big impact on the tax planning that you do today.

Similarly, another concept I want to get across is that tax planning should be done in an integrated fashion.  We are famous around here for saying that we cannot provide modular advice in a vacuum. Or, we cannot provide tax planning advice in a vacuum because tax decisions can impact cash flow, it can impact the investments, or it can go the other way around. So, even though this episode is focused on taxes, we encourage you to take into account all aspects of your overall financial situation before implementing tax strategies. Whether you have assembled a team of tax, investment, and financial planning professionals that work in a coordinated fashion or if you happened to have all of those disciplines in one team, or if you are an extreme Do-It-Yourselfer and like to research the tax code, the investment markets, and develop your own spreadsheets, it’s critically important to take an integrated approach to tax planning.

Be Flexible With Your Tax Planning

The final point with tax planning is to be flexible. Since many aspects of tax laws can and do change (e.g., tax rates, the deductions and credits, various thresholds and phaseouts), it is important to be nimble in your tax planning. In addition to changes in the tax law, your situation may change over the years (e.g., income, nature of assets, family make-up). With these changes, you may have to be really nimble to take advantage of tax opportunities over a short-period of time. Quick action – still with the right analysis – may have to be done. This is one of the reasons we often say that planning is a journey. If you are working with an advisor on your financial planning or on your own, you know that financial planning is not a one-stop deal. And, the need to be nimble for tax planning is indeed one of those reasons why planning should be a continual process.

How to Minimize Income Taxes in Pre-Retirement

Now that we have covered many fundamentals in tax planning, let’s turn our attention to several specific strategies that you could consider if you were 1 to 10 years from retirement. Again, the implementation will vary by all individuals. Even if you are a “near retiree”, your situation can be quite different from someone else that is in the same stage of life. Nevertheless, let’s take a look at some of these strategies.   We will take more of a high-level approach in looking at these strategies since we will delve into many of these tax strategies in more depth in future sessions.  Also, there are different strategies for recent retirees and different strategies for those with children. Again, we will explore those strategies in other episodes, but we will focus on the more relevant tax planning strategies for near retirees in this episode.

Saving to Employer Retirement Plans

The first one tax strategy I want to delve into is tax deferrals to your employer’s retirement plan, whether it is a 401(k), 403(b) or one of the less common retirement plans like a SEP IRA. This is the bread and butter of retirement planning. You know that it is generally good to defer income into these plans and it is generally a no-brainer to at least defer as much to get the full company match.  It’s free money. Take it.

Benefits. There are various benefits to savings to deferred plans. One, it sets aside money earmarked for retirement. While the relatively lack of flexibility at getting the money may be seen as disadvantageous, having the money in this kind of account should discourage you from accessing the funds. (Make sure you first have enough in your emergency fund, however!)  Second, when you defer income taxes, that means you are able to get growth on the taxes that otherwise would have to be paid. Thus, the compounding effect is even greater. Also, if you save to a traditional plan, then you may benefit from tax arbitrage – your tax rates may be higher when you save to the plan versus when you withdrawal from the plan in your retirement years. This is not always the case and it does not have to be the case to necessarily benefit from deferrals, but it may be another advantage. As we will discuss in a bit, you will want to compare current versus your future potential tax rates to determine whether to save to a traditional or Roth type of retirement plan. 

Consider other resources to help with funding retirement plans. While this is fairly basic planning, I have seen mistakes for planning opportunities with folks over the years. One, I’ve seen people under-contribute to these plans because of cash flow concerns. While you generally should not spend and save more than you make, you should also take into account whether you have additional resources to meet your annual living expenses. If you have a large taxable account – that is, an account outside of an IRA or a corporate retirement plan – and it otherwise makes sense to contribute to a corporate retirement plan, then the idea is to draw on the taxable account to help meet your living expenses which would allow you to defer more of your income to the corporate retirement plan. You obviously need to be aware of any additional taxes that may be triggered by the taxable investment account and perhaps make changes to your asset allocation of that account if you go that route, but this can result in generous tax savings over both the short- and long-term.

Don’t forget about the catch-up contributions. As most of you know, if you are over age 50 then you can contribute an additional amount above the basic employee elective deferrals. So, as of 2021, you can defer up to $19,500 plus the catch-up contribution of $6,500. That’s a significant savings amount so no worries if you cannot contribute that. But, for those that can, getting this extra tax deferral may be quite beneficial over the long-term.

Roth bucket of retirement plans. Also, consider whether contributing to the Roth bucket inside the corporate retirement plan makes sense for your situation. Many people are surprised to hear about this possibility. There indeed is such a thing as a Roth 401(k) or Roth 403(b). The tax benefits and analysis for determining whether to contribute are basically the same as a Roth IRA.  The income deferred into the Roth is taxable, but the growth thereafter – even when it is distributed – is tax free. Depending on your marginal tax rates now versus the future as well as the nature of your other assets and financial picture, this may be beneficial. If you are in your high earning years, it is likely the Traditional is the more prudent choice, but again, it really depends.  It is important to note that not all retirement plans offer this Roth option. It depends on whether it was drafted into the Plan documents. If your company does not offer this, it is worth asking your HR group about making this change. I know when we work with companies on establishing these plans, we always recommend having this as an option.

Mega Backdoor Roth IRA. Along those lines, another unique strategy to consider is what we often call in the industry as a Mega Backdoor Roth 401k or IRA. I won’t get into a lot of details here, but this strategy can be especially beneficial for those with ample cash flow or other resources to contribute a significant amount to the 401k.   The basic idea is that you contribute above the employee elective deferral amount of $19,500 or $26,000 for those over age 50 as after-tax dollars to the 401k and then convert that to the Roth bucket in some form or fashion. You might be able to do an in-Plan Roth conversion or your plan may allow you to do an in-service distribution if you are over age 59 ½ to a Roth IRA. The idea is that since you were already taxed on this deferral, there should be little to no income recognized on this conversion. By being able to get an extra $10 to $30,000 into a Roth bucket can result in tens of thousands of tax savings over the long-term. Again, the devil is in the details on this strategy, and we will cover it in future episodes.

Other topics to explore.  Another item to keep in mind is that employer retirement plans have some basic features in common but there can be differences between one plan and another.  So, know your plan!  Obviously, there can be a lot to planning-related considerations for deferrals to company retirement plans.  We did not have time to touch on other related subjects such as Net Unrealized Appreciation, Non-Qualified Deferred Compensation Plans, ESOPs, and the different type of small business retirement plans, but we can save those for another day.

Saving to IRAs: Underutilized?


Let’s pivot to saving to IRAs. Everyone is aware of IRAs and many of you religiously save to IRAs, but I did want to touch on a few planning considerations.

Should I Save to an IRA v. My Company Retirement Plan? One big question is should you save to the IRA or company retirement plan. Assuming you cannot save to both, there are a few considerations.  

  1. Match. First, you should generally save to the company retirement plan to the extent there is a match. 
  2. Investment choices and expense ratios. Then, you should evaluate the investment choices within the company retirement plan , taking into account the range of asset classes available and the expense ratios of the funds and the overall plan fees.
  3. Creditor Protection. In some cases, some say saving to a 401k is slightly more beneficial because of potentially more beneficial creditor protection characteristics and the ability to take limited loans out of the 401k. But, I think those are minor considerations relative to the investment choices and expense ratios. 
  4. Simplicity – only go with company retirement plan. And, in some cases, if you don’t have other accounts on the outside, the best approach might be to just keep it simple and only have the corporate retirement plan. The worst thing you can do is to create a lot of different accounts and ignore the investments over time – we have seen that way too often.
  5. Access. In general, you cannot access your company retirement plan until you retire. (There are exceptions.)  With an IRA, you generally cannot access them penalty-free until age 59 ½ (with some exceptions). With a company retirement plan like a 401(k), you may have the ability to tap into the plan ate age 55 without any penalty – if you are retired from there. So, if you are looking to retire relatively early, keep this factor in mind in deciding what bucket to save toward.

Should I Save to an IRA? Now, if you have unlimited resources to save above and beyond the basic savings to the company retirement plan, should you save to an IRA?  Most of you know that you can save to both – as long as you have sufficient earned income – but I’m surprised about how often we are met with surprise when individuals say they didn’t know they could save to both.  Or they think the maximum contribution levels are looked at together. In fact, IRAs have their separate contribution limitations from company retirement plans. So, you may be able to save the maximum employee elective deferral to your company retirement plan ($20,500 as of 2022), and or to your IRA ($6,000 as of 2022). Of course, for those over 50 – which is likely the largest segment of our listening audience – you have the separate catch-up amounts that apply to each savings vehicle.

Should I save to my IRA even if I don’t get the tax deduction or am not eligible for the Roth IRA? If you cannot get the tax deduction or if you cannot contribute to a Roth IRA due to AGI limitations (i.e., you make too much income), then it is often better not to save to the IRA. You can save to a taxable investment account and still use that account for your retirement, of course. And, the taxable account has the benefit of providing easier access – you can withdrawal from that account at any time.

Cautious of early retirement. One thing to be somewhat aware of is saving too much to these retirement plans if you are going to retire early.  In general, these plans cannot be tapped until age 59 ½. Congress put these in place for retirement so they set certain restrictions on them.  While there are some exceptions under Code 72(t), the Rule of 55 for 401k plans, and with Roth IRAs, we won’t get into those details on at this point. At this point, I merely want to caution you of sticking too religiously to the mantra of “save all you can to retirement plans”.  You need to take into account your overall situation rather than merely considering the potential tax benefits.

Should I Save to a Traditional or to a Roth? One other popular question or planning opportunity is whether to save to the Traditional or Roth – whether it is using the IRA vehicle or a corporate retirement plan like a 401(k).  For IRAs, you obviously have to be aware of the eligibility thresholds for these contributions. I won’t get into the details, but you can only make so much income to contribute directly to a Roth IRA and you can only make so much income to make a deductible contribution to a Traditional IRA. Added to the complexity, those threshold amounts vary based on whether you or your spouse are eligible to contribute to a corporate retirement plan.  (Note that the 401(k) does not have such thresholds – this is another fact that nearly half of individuals get wrong.)

Ignoring those rules, the answer is “it depends”. Whether to save to a Traditional or to save to a Roth depends on your overall financial situation, including current and future marginal tax rates, time period, and rate of return. In many cases, it makes sense to contribute to a Roth early in one’s career when one’s income is assumingly low and to contribute to a Traditional when one’s income is higher (e.g., in your peak earning years).  If you are nearing retirement and you are in your peak earning years, it might still make sense to contribute to the Roth bucket – it just depends on your future marginal tax rates.

The decision can be complicated because it is not easy to predict what the marginal tax rate may be in the future. Again, performing analysis on your situation over the long-term and getting an idea of what other potential tax strategies are available for you will help shed better insight into future tax rates and ultimately help you make more informed decisions on what to do today. So, the answer as to whether to save to a Traditional or Roth is that it really does depend on one’s unique situation at that particular time.

Spousal IRA contributions. Another planning opportunity is to make a spousal IRA contribution.  This is one of the most overlooked opportunities. Most of you know this, but I will state the rule -- a non-working spouse can make an IRA contribution even if they do not have earned income. The other spouse merely has to have adequate earned income, and you still need to be aware of the income limitations. 

Roth IRA potential because of different AGI limits. A lot of times we hear individuals don’t want to make a contribution to the IRA since the contribution will not be deductible in one’s particular situation. We often dive deeper and realize they are eligible to contribute to a Roth IRA which has different AGI limitations. Sure, saving $6,000 or $7,000 in one year does not lead to huge tax savings, but if you can make this contribution over multiple years, the tax savings can add up. Depending on the asset allocation, the turnover and the marginal tax rate, the after-tax return on a Roth IRA versus a taxable account can be 1% or more in some cases. Avoiding this “tax drag” could have a huge impact on the long-term growth of the portfolio. 

Backdoor Roth IRAs.   Another planning opportunity with individuals in their pre-retirement years is Backdoor Roth IRAs. There is no tax code section that spells out this strategy, but the idea is to contribute indirectly to Roth IRAs if your income is too high to allow you to contribute directly to a Roth IRA in any one year. The strategy generally works as follows: contribute to a non-deductible Traditional IRA followed by a Roth IRA conversion after a certain period of time. Since the tax basis of the contribution is equal to the amount of the contribution (as you did not get a deduction for this contribution), the income recognized on the Roth conversion may not be that significant. It depends on what the IRA grew too at the time of the conversion.  Now, there are more complications here including being aware of the basis aggregation rule if you have other amounts in IRAs as well as the step transaction doctrine, but this strategy should be at least considered.  Moreover, if you couple this with the spousal IRA contribution, this can result in significant savings over the long-term.  Again, you should discuss this strategy with your CPA before implementing it.

How Can a Health Savings Account Minimize Income Taxes?


Let’s turn our attention to another tax-deferred vehicle – the Health Savings Account or H.S.A.  Despite the wide publicity of this, there is still a lot of misinformation out there. I feel like this can be one of the most effective tax tools available and is the most underutilized.

Tax Savings Overview. Let’s briefly review what a H.S.A. is and address common misconceptions.   The H.S.A. is a tax-favored investment vehicle that provides three tax benefits: 1) it allows you to contribute and receive an income tax deduction, 2) provides for tax-free growth and tax-free distributions on the earnings as long as the distributions are used for qualified medical expenses, and 3) if you save to the H.S.A. through your employer, those contributions may provide a FICA tax deduction as well. There really is no other tax vehicle out there that provides for all of these tax attributes. 

 Eligibility and benefits of a High Deductible Plan. To be eligible to donate to this, you need to be enrolled in a qualified High Deductible Plan. That’s the catch.  A High Deductible Plan is defined in the Code, but it is basically a medical insurance policy that qualifies because its deductible exceeds a certain threshold. If the deductible is too high, it might not be the right fit for you. So, you do need to evaluate whether a High Deductible Plan makes sense for your health coverage needs. 

Misconception #1. My current medical costs are too high so a high deductible plan and H.S.A. do not make sense for me. Merely because you may have to pay more in deductibles or just because you feel like your medical costs would be high with a High Deductible Plan does not mean that such a plan does not make financial sense for you. You need to weight the costs with the benefits.

While you may have to pay more in out-of-pocket costs for the deductibles, the potential tax benefits of going with the High Deductible Plan with the H.S.A. often outweigh higher out-of-pocket costs if there are any in the first place.  

In addition to the potentially significant tax benefits over the long-term, the insurance premiums are likely lower with the High Deductible Plan. This will depend on the price structure of the insurance and the portion of the premium that your employer pays. 

Too often, I’ve seen folks discount the benefits of both the tax savings and premium benefits because they want a lower deductible. So, before you discount the idea that the combination of a high deductible plan and a Health Savings Account is not right for you because your current medical costs are high, I would encourage you to analyze the overall benefits versus the costs.

Misconception #2. My medical costs are too low so I cannot take advantage of a H.S.A.  I have also seen that even though someone may be in a High Deductible Plan they don’t contribute to a Health Savings Account because they say they have very little medical costs. When they say this, I think they confuse a H.S.A. with a Flexible Spending Account, or FSA. With a Medical FSA, the contributions do need to generally be used by March of the next year – otherwise, the contributions are generally lost. 

However, with a H.S.A., the savings stay inside the account indefinitely. Generally, the best way to utilize the H.S.A. is a long-term retirement vehicle used for medical expenses. An individual is more likely to have medical expenses in future years and Medicare insurance premiums qualify as eligible expenses so usually there’s not a problem in using up the account for qualified medical expenses. Depending on someone’s situation, it might be best to wait until their 70s or so to begin the distribution phase, but it is really dependent on the individual’s situation. There are more nuances to H.S.A. planning that we will also cover on another episode, but we did want to provide some highlights for now.

Flexible Spending Account: Not a Bad Plan B. While I praised the benefits of the H.S.A., you may indeed not be eligible or the math may suggest that it is not beneficial for you. If that is the case and if you are offered an FSA, then certainly consider this as it can lead to tax savings as well. I won’t discuss these in detail at this time, but be cautious of overfunding this account.

Bunching Deductions and charitable planning.


For those that are charitably inclined, the strategy of bunching may be beneficial.  The relevance of this strategy arguably became a bit more relevant when legislation was passed that increased the standard deduction. Many folks were giving to charity and effectively not getting a tax break for this contribution. (Note that the previously lower standard deduction is legislated to come back into play in 2026, unless Congress makes further changes).  Let’s talk about how these individuals can take advantage of itemized deductions for charitable gifts.  

The idea behind the bunching strategy is that your overall deductions may be greater if you time the recognition of your itemized deductions by taking a multiyear approach to tax planning. More specifically, you would alternate the years in which you take the itemized deduction versus taking the standard deduction.  

As you may know, the tax code gives you the option of taking the greater of the standard deduction or your itemized deductions for any given year.   If your itemized deductions are a bit below your standard deduction in any given year, it may make sense to shift the timing of some of those deductions to where you can “bunch” more of the itemized deductions in one particular year. You may have one or two years in which you take the standard deduction and in the alternating year you take your itemized deductions. 

While the bunching strategy can be applicable to a few itemized deductions (e.g., charitable gifts, medical, state and local taxes),  it can be especially beneficial for those with significant charitable gifting or a combination of charitable gifting, mortgage interest deduction, and state and local taxes. 

Again, a few of the fundamentals that we talked about earlier was looking at tax planning over a multi-year basis and considering what your overall goals are over the short- and long-term.  These fundamentals can be especially useful in implementing this bunching concept and can save thousands of dollars, depending on the taxpayer’s situation.

It might be especially beneficial to implement this strategy before retirement since you might be in a higher income tax bracket in light of your wages.  The benefit is that not only might you be able to take higher deductions, but your tax deduction is now at a higher income tax rate. 


How Can I Minimize Capital Gains Tax?

Let’s now address one final tax planning area to consider before retirement - capital gains tax planning.  These strategies are focused on how to structure the sale or transfer of your appreciated assets in a way to minimize income taxes.  Typically, this only applies if you have a decent amount in a taxable account.  And, when I say taxable account, I mean an account that is not tax-deferred like an IRA or a 401k, nor tax-free like Roth.  Some call these “tax-now” accounts because you can be taxed now on the income, whether that be dividends, interest income, or capital gains.  

As you know, when you sell appreciated assets, you typically have to recognize income in the form of capital gains to the extent the proceeds exceed your cost basis. The tax code then applies the capital gains tax rate to derive the income taxes. The interesting part, and one of the planning angles, is that a different capital gains tax rate applies to different levels of income. 

Tax Rates and Net Investment Income Tax. We won’t get into the weeds on what those thresholds are now, but the tax rates for long-term capital gains are 0% for those with low taxable income, 15% for those with moderate to high income, and 20% for those with significant income. There is also another tax – the net investment income tax – that acts as an additional tax on capital gains if you exceed certain thresholds. This tax is at 3.8% so one could have federal capital gains tax rates as high as 23.8%.  And, there’s always the risk that Congress may increase these tax rates and you should also consider state income tax rates as well.

Minimize but don’t let tax tail wag the dog. So, with so much on the line, it is helpful to try to plan to minimize the impact of capital gains taxes. Before we touch on a few concepts, however, we want to recognize that there is a huge risk of relying on tax strategies too much.  We often say around here that we don’t want to tax tail to wag the dog, and by that we generally mean that the investment characteristics of the capital asset such as a stock holding in relation to your other holdings and goals should be the primary driver in deciding whether to retain or sell the asset. We have seen way too many people hold onto concentrated positions because they either don’t want to pay capital gains taxes or because they plan to do more strategic tax planning. Be careful because a lack of diversification can certainly negatively impact your wealth.  (Planning for significant concentrated positions require an entirely different level of analysis and approach.)

Nevertheless, despite this warning, let’s take a look at some capital gains tax planning. 

Time the sale based on tax bracket. First, you may be able to time the sale of assets to fall within a lower income tax bracket. If you are working, it is unlikely you can get into the 0% bracket, but perhaps you are trying to avoid being taxed in the 20% bracket or are trying to avoid that additional 3.8% tax. You can look at your overall tax situation to determine how much you can sell to get in the desired tax bracket. Perhaps you can stretch out the sale of the assets over multiple years to achieve more favorable tax results. Or, you may be able to time the recognition of your other income so that a higher tax is not paid. 

Along those lines, if retirement is right around the corner in which your income will be quite low, perhaps you look to take some gains in the early years of retirement to minimize capital gains taxes. Perhaps you can have some or all of the gains taxed at 0%. Some might call this “gain harvesting”. This needs to be reviewed in relation to a lot of other strategies, but it is worth considering. 

Deduction planning. Similarly, you may be able to control the deduction side of the equation to reduce your overall taxable income in order to get into a lower tier of capital gains tax rate. Perhaps you do more charitable bunching one particular year or you defer more of your salary to reduce your overall taxable income. So, the timing of income recognition and deduction recognition may help reduce overall capital gains taxes.  

Loss harvesting. You may also be able to take advantage of capital losses to reduce your income taxes. Even if you did not have any capital gains, the tax laws generally allow you to offset up to $3,000 of losses against ordinary income. While this is not a huge amount, this can add up over time. If you can take a deduction of $3,000 at 32% rather than have it offset capital gains that otherwise would be taxed at 15%, that’s a nice little tax benefit. Capital losses can also be used to offset capital gains and this should be done as part of your overall investment and tax management.

Charitable gifts of appreciated assets. In addition to timing the sale of the asset and timing the recognition of your other income and deductions, making charitable contributions with appreciated assets may be beneficial in reducing capital gains taxes.

Typically, if you gift appreciated assets to a qualified charity, you may be able to get an income tax deduction. That certainly can be quite beneficial as we discussed earlier. In addition to that, you can potentially avoid having to recognize capital gains on the transfer of that appreciated asset to charity. So, that’s a double tax benefit and the aggregate tax savings can be significant. So, gifting appreciated assets to a qualified charity should be considered -- both during your working years and during retirement. 

 The timing is important in gifting appreciated assets. As we talked about earlier, you will likely be in a higher tax bracket in your last full year of working compared to the first several years of retirement; thus, it might make sense to make that charitable contribution during your working years. There are other techniques to consider here, including the bunching deductions concept that we talked about earlier and using donor advised funds to provide flexibility, but we will have to wait to cover those in future articles and episodes.

Other Tax Minimization Strategies in Pre-Retirement

There are obviously many other tax strategies that we did not address, especially if you have young children or are paying for kids in college. Also, there are many tax benefits business owners should consider. We will address all of those at a later date.

So, there are a variety of tax strategies to consider in your pre-retirement years. Again, we strongly encourage you to work with your multi-disciplined advisory team to take an integrated and multi-year approach to your tax planning. Some of these strategies may be home runs for your situation or they may be mere singles, but added up they can potentially result in significant savings over a multi-year period.  And, the greater the tax savings, the greater your overall portfolio and resources for retirement, helping you to better reach your retirement goals and live a fulfilled life.

Of course, feel free to reach out to Oasis Wealth if you want to discuss which tax minimization strategies may be right for you as you plan for retirement.