Tax Efficient Financial Planning

It’s not what you make, it’s what you keep![/caption]

This is one of the key focuses of tax efficient financial planning

It’s about the bottom line, or what you actually keep after you have paid your taxes!

So, how can you plan properly and give yourself the highest probability of having a plan that will create tax efficient cash flow for you and your family for the rest of your life?

The answer lies in a thorough, systematic approach to your planning, investing, income sources, and cash flow creation management. Now that was a mouthful!

This is the approach I call

“ Tax Efficient Financial Planning ”

Yes, there are lots of moving parts in this process. It can appear quite overwhelming.

My suggestion is to remember you did not create your financial structure in a day, so don’t expect to solve in that quickly.

It will take some time, some organization, and some thought.

OK, so where tax efficient financial planning?

First, I would suggest looking at the tax structure of your current and future sources of income.

Potential Income sources:

  • Wages
  • Pensions
  • Annuities
  • Social Security
  • Investment Cash flow:
    • Taxable accounts
    • IRA, Retirement and other “Tax Deferred” accounts.
    • Roth IRA’s or other non-taxable income.
    • Tax Free Securities
  • Sale of non-investment assets.

Cash flow then needs to be modeled over your projected lifespan based on current assumptions i.e.:

  • How much are you currently spending on average monthly or annual basis?
  • How might this change in years to come?
    • Are there things you want to spend on that you are not spending on now?
    • Are there areas of spending that might increase?
    • That might decrease?
    • That might stop altogether?
    • That might start at a future date?

Again, the list above can feel overwhelming!

My advice is to look at this as a project to complete over time.

(If you have not read my article on the 15 minute approach You might find it helpful with this work.The article was originally written to assist my clients with organizing their cash flow work. As you will see, it is an approach that can be applied to most any task or project.

Once you have an estimate of your annual expense needs and your income sources by type, you can begin to create some “fill in the blank” scenarios and vary the amounts of income from different sources to model your tax situation on an annual basis.

Again, most make the error here of trying to be too detail oriented. At this point we are really just getting started. We are looking big picture!  Remember these figures will change due to changing view and circumstances on your part, changing values of assets and thus cash flow generated, and let’s not forget, changing tax laws!

The idea here is just to get a feeling for how this works what your needs might look like, and how your tax efficient financial planning may change.

If you can get those three items to a decent level of understanding, you will be ready for the next step, which is beginning to look at the actual structure of your income sources and structuring for future tax efficiency.

That will be discussed in the next article in this series. I also plan on creating interactive worksheets to assist with the data gathering and analysis work I will discuss.

If you have questions or comments or would like to discuss  your own situation and see how/if these methods might be helpful, you can use my online schedule to set a time to talk. You can choose a phone call, a meeting, or meet for coffee or lunch.

Jerry Bergner, AAMS CMFC

Integrated Life and Financial Planning does not offer legal or tax advice. This material is not intended to replace the advice of a qualified tax advisor or attorney. Please consult legal or tax professionals for specific information regarding your individual situation.