EP Wealth Vice President, Advisor, Lucas Karasch, CFP^®, shares how proactive tax planning during your working years and into retirement may help you manage your tax liability more effectively. 

What Happens to Your Tax Liability with Proper Financial Planning?

No one wants to pay a larger share of their income in taxes than the law requires them to. Yet, the reality is that it's all too easy to end up overpaying unless you have a detailed tax planning strategy in place that speaks not only to your current financial situation but also to your long-term goals. A proactive approach to tax planning may give you more flexibility to direct your resources toward the things that are most important to you—whether that's building wealth, supporting family, or enjoying retirement on your terms.

As a Certified Financial Planner™, I help clients develop tax strategies that take their full financial picture into account—from the benefits available during their working years to the decisions they'll face in retirement and beyond. One thing I've seen consistently is that the clients who benefit most from tax planning are the ones who take a long-term view, looking beyond this year's return to consider how their tax picture may evolve over time. In this blog, I'll discuss how proper planning can make a huge difference when it comes to finding meaningful tax advantages.

I'll also cover some key factors to consider when making changes to your financial plan over time.

Tax Planning Strategies for Individuals and Families

Retirement Benefits

Part of our discovery process at EP Wealth involves going through your employee benefits book to make sure you're taking advantage of all the potential planning strategies that are built into your company retirement plan.

For instance, if you have a 401(k) or 403(b), there are pre-tax dollars you can save without paying taxes on it for the next 10–30 years, all while growing and compounding tax-deferred interest. Investing enough to get the full company match is one of the most straightforward ways to collect what is essentially additional compensation you're entitled to.

Employee Savings Accounts

Beyond the retirement savings plan, does your employer also offer benefits like Dependent Care, Health Savings Accounts (HSAs), or Flexible Spending Accounts (FSAs)?

HSAs and FSAs work much the same way. If you have a high-deductible plan, you can save pre-tax dollars in a bucket or choose to continue paying out of pocket and invest those dollars where they get to grow tax-free for healthcare expenses in retirement.

If you have kids in childcare or preschool, you can take pre-tax dollars, park it into a bucket, and then reimburse yourself every month or at the end of the year. These are bills you would've paid for childcare anyway, but you can save hundreds—if not thousands—in taxes by doing it this way. What a great hack for families! My wife and I used to take advantage of it every year when our kids were younger.

Business Owner Tax Advantages

If you're a business owner or have a side hustle, there are a lot of great planning opportunities and strategies available. At EP Wealth, we have an in-house Tax Service team who help our clients evaluate their situation and write off what they can from the business to save on personal tax liability.

For example, a business owner who is self-employed or operates through an LLC or S-corp may have options for setting up a retirement plan—such as a SEP IRA or Solo 401(k)—that allows for higher contribution limits than a standard employer plan. There may also be opportunities to time income or expenses across tax years in ways that affect which brackets apply. These areas tend to involve a number of technicalities, which is one reason we work closely with our CPAs to evaluate each client's situation carefully.

How Often to Review Your Tax Strategy

Life situations are always changing, so I recommend setting a goal to review your tax strategy at least twice a year. All too often, I see someone "set it and forget it," and then a year later, Uncle Sam comes knocking on their door saying they under-withheld by however many thousands of dollars, and now they have to pay that back. They didn't realize that because they got that raise last year, they need to withhold more in taxes from each paycheck.

Check Your Tax Withholding

Checking your tax withholding at least twice a year is really important—and there's a great IRS Tax Withholding Estimator online where you can enter your most recent pay stubs and see whether you'll get a refund or you'll owe. That way, you can make a modification through your payroll to stay on track so you're not surprised with a big tax bill—or get too massive of a refund when you could have been using that money throughout the year to invest or spend.

End-of-Year Tax Planning

End-of-year tax planning can be beneficial if you have taxable trusts or brokerage investments where there are capital gains or losses. In years where the market has pulled back, some of our clients have taken advantage of tax loss harvesting, which is where you sell a holding that's technically at a loss, but we reinvest into another similar holding for 30 days to save money on taxable gains year-over-year.

In other words, it's a strategy to shore up tax losses to offset future gains while still remaining invested.

Example of Tax Loss Harvesting

Here's one example: let's say I sell Coca-Cola for a $1,000 loss. The next day I buy Pepsi, hold for 31 days to avoid the wash sale rule, and then after 31 days, I sell it and get back into Coca-Cola. Now I've got that loss for the future from my sale of Coke and by purchasing Pepsi, I'm still participating in whatever happens in the soda market for one month—not just sitting on the sidelines.

Adapting to a Changing Tax Landscape

The tax code is always evolving, and strategies that work well today may need to be adjusted as new legislation takes effect. For example, several provisions of the Tax Cuts and Jobs Act are scheduled to sunset, which could affect tax brackets, deduction thresholds, and estate tax exemptions. Similarly, the SECURE 2.0 Act is gradually changing the age at which required minimum distributions must begin—moving from 73 to 75 starting in 2033.

These kinds of shifts can have a meaningful impact on how a tax strategy should be structured, which is one reason regular reviews are so important. Staying in close contact with your financial advisor and CPA can help you adapt your approach as the rules change.

How Financial Planning Can Help Manage Tax Liability Near Retirement

Here's a common scenario we see: a couple comes in—late fifties or early sixties—and they're getting ready to retire. They've got a couple of adult children, and they're looking at their assets. They've saved a lot in pre-tax 401(k)s and IRAs.

We know they're going to be okay in the long run, but once required minimum distributions (RMDs) start, they're going to have to take a couple hundred thousand dollars out that they'll have to pay taxes on. Maybe, based on their spending patterns, they don't need all that money at once.

So, during that window where their income has dropped in retirement and they're in a very low tax bracket, we run projections to determine how much they can convert into a Roth IRA from their pre-tax IRA to fill up the tax bracket.

They won't get a tax break on the front end, but all the growth in that account moving forward will remain untaxed and tax-free for their kids—because Roth IRAs have no RMDs. So technically, that bucket can just be a legacy bucket for their kids.

Depending on the size of the accounts and how many years of conversions are available, this approach has the potential to meaningfully increase the amount that passes to heirs over time, because the growth in a Roth account is not subject to income tax.

The Retirement Tax Planning Window

Stage 1: Late Working Years — Evaluate Roth conversion opportunities and review employee benefits

Stage 2: Early Retirement (Before RMDs) — Take advantage of lower tax brackets; consider strategic conversions

Stage 3: RMD Age and Beyond — Manage required distributions, IRMAA thresholds, and charitable giving strategies

Managing IRMAA and Medicare Costs

When you're retired, you don't want your income to be too high, as it affects your Medicare premiums and how your Social Security is taxed. This is where the Income-Related Monthly Adjustment Amount, or IRMAA, comes into play. IRMAA is a surcharge that applies to Medicare Part B and Part D premiums when your modified adjusted gross income exceeds certain thresholds. For retirees with substantial pre-tax retirement accounts, large required distributions can push income past those thresholds and result in significantly higher monthly premiums.

Proactive income planning in the years leading up to and during retirement—such as strategically timing Roth conversions or managing the pace of withdrawals—may help keep income below the levels that trigger IRMAA surcharges. This is an area where coordination between your financial advisor and CPA can be particularly valuable.

Charitable Giving as a Tax Planning Tool

For clients with charitable goals, there are several giving strategies that may also offer tax benefits worth exploring with an advisor:

• Qualified charitable distributions (QCDs) allow individuals who have reached RMD age to direct distributions from an IRA straight to a qualified charity. The amount given counts toward the RMD but does not get added to taxable income, which may also help with managing IRMAA thresholds.
• Donating appreciated securities directly to a charity or to a donor-advised fund (DAF) may allow you to avoid realizing capital gains on those shares while still supporting the causes you care about. With a donor-advised fund, you may be able to take the charitable deduction in the year of the contribution and then direct grants to specific charities over time.

These strategies tend to work best when they're coordinated with the broader financial and tax plan, which is why it's helpful to discuss charitable goals with your financial advisor as part of the planning process.

Tax Planning Strategies to Discuss With Your Advisor 

How EP Wealth Approaches Tax Planning

During the onboarding process, we gather a lot of data from you—tax returns, recent pay stubs, spending charts, rental real estate income, different accounts and their tax statuses, embedded capital gains, and distribution strategies. We want a complete picture of your financial life. Even if it's not an investment that we at EP Wealth are managing for you, we still want to know about it because it may significantly inform our overall recommendations.

Then our in-house CPAs review your tax returns and create various projections, while our financial advisors can help coordinate across related areas like retirement planning, estate planning, and investment management.

For instance, if you have a bunch of company stock—say you worked for Apple for 30 years and you have over 2 million dollars just in Apple stock. As you near retirement, you know you have a concentrated stock risk with 60% of your net worth tied up in one stock and you need to diversify, but you'd owe taxes on 1.5 million dollars in capital gain if you sold it. In this scenario, we have all sorts of strategies to sell down and diversify that stock, while also strategically mitigating taxes along the way, so you're not just ripping off the band-aid and paying more in taxes than necessary.

Every financial situation is different, and the right tax strategies depend on your income, investments, retirement timeline, and long-term goals.

If you're ready to explore opportunities for more tax-conscious planning, connect with an EP Wealth advisor to discuss your options.

DISCLOSURES:

• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the advisor has attained a particular level of skill or ability.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made so that any direct or implied results or projections being represented here will be met or sustained.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
• Tax matters can be complicated. All tax references are general in nature and are not intended to supersede professional advice. Please consult with an accountant and/or attorney before implementing any of the strategies discussed. EP Wealth Advisors is not engaged in the practice of law or accounting.