Welcome to today’s CT Buzz. I’m Rachel Lutzker. Let me ask you a question. Do you know the difference between tax preparation versus tax planning? Well, tax preparation is what your CPA does. They record history by filling out your tax forms with what already happened. Well, tax planning is a proactive, forward-looking strategy that anticipates future taxation and works to minimize tax bills while maximizing net income before the end of the year. Both are very important, but tax planning is more proactive and it’s never too early to get started. In fact, now would be a really good time. Well, Ben Fuchs, founder of Fuchs Financial, is here to talk about how they can help you be proactive by guiding your tax planning process so that it works to your advantage. Now, in addition to being a certified financial planner, Ben is also a certified private wealth advisor professional. And remember, although we would like it very much, your tax bill does not go away when you retire. Unfortunately, no. No. In fact, for some people, the amount they owe in taxes goes up after retirement. If you’re taxed at a 25% rate, for example, one quarter of your money is essentially not yours. Your tax rate may even be higher than that. That’s why anticipating taxes and implementing a proactive tax plan can help you achieve the successful retirement you’ve worked so hard for. Without a plan, you may have little or no control over how much you pay in taxes down the road. All right, so what should we be doing? Oh, great question. Thank you for asking. Yeah, think about how your retirement savings will be taxed. Not all money is the same. Some may be in a 401k on a tax-deferred basis. Some might be in a Roth IRA and be tax-free upon withdrawal. You need to know what your tax bill will be for each dollar you own. And it definitely helps to understand the choices that you have. All right. You mentioned a Roth IRA. So, let’s talk about that a little bit. Oh, okay. Great. So, I’m supposed to… Yes. It’s an additional retirement account consisting of income after the taxes have been paid on that money. So, that money can grow tax-free with no taxes due on the interest earned. So, let’s take a quick example. Well, if I’ve got $10,000 and it’s inside of the Roth IRA and then it doubles by the time I’m 25 to 35 and I’ve got $20,000, and then it doubles again at 45, I got $40,000, it doubles again, I got $80,000, doubles again, I got $160,000, I only pay taxes on that first $10,000. That other $150,000 all grew tax-free and when I take it out, I don’t pay any taxes on it. All right. Well, what about a Roth conversion? Is this different? Yeah. So, Roth conversion is different. A Roth conversion moves part or all of the balance of a traditional IRA into a Roth IRA. The converted amount is subject to regular income tax once it is in the Roth IRA. However, again, it grows tax-free. So, this all sounds great, but the important thing and really the end result here is to reduce your tax bill. Yeah, absolutely. Because in those scenarios, you’re actually paying more money upfront in taxes, but will it benefit you over the long term? I mean, the bottom line here is that allocating assets based on taxation will help you make the most efficient decisions about how and when to withdraw your income. The more you can reduce your tax bill, the less pressure there is on your portfolio to provide high and sustaining returns to support the cost of your lifestyle. That also means you can take less risk with your investments to achieve the right outcome. It does sound like a lot of this is very overwhelming to most people. Where do you start? What do I do? Am I doing things right? So really the financial planning of this is really the important part and that’s where Fuchs Financial comes in. I mean, the reality is that you can make a lot of mistakes. If you’re trying to convert money to Roth IRAs, you could go over certain income limits both in the state of Connecticut and federally, that you could be paying IRMA taxes or taxes on Social Security or capital gains that you weren’t previously paying before. So, understanding how to do it correctly, making sure that you’re doing things in the right position, that’s what we’re here for. And we actually hired an accountant on staff so that we could help our clients and do their taxes, a lot of cases for free, so that we’re making sure that everything is in alignment and they don’t have to go all over the place to take care of their financial planning needs. All right. So to get you started, if you could use some professional guidance, reach out to Fuchs Financial for a complimentary no-obligation consultation. Yeah. Or get a second opinion on your existing retirement financial plan from our top-notch team of experts at Fuchs Financial. Our offices are located in Middletown, West Hartford, Middlebury, and Mystic. And that keeps you going. Oh, yeah. No, it’s fun. A lot of miles. Just visit their website, taxesandincome.com, or call 860-461-1709 to set up an appointment for your complimentary consultation. Thank you so much for joining us for today’s CT Buzz. I’m Rachel Lutzker and we will see you next time.
