By Tony Delane, CFP®, AIF®, Associate Wealth Advisor
We continue to be relentless in gathering as many client tax returns as we can. They contain so much valuable information that we can use in advising you on just about everything we help you with – investment management, cash flow planning, retirement planning. You name it, and your tax return entrusted with us can help.
Preparing you for significant tax events
Our advisors are skilled at recognizing patterns and uncovering common oversights that retired clients can make. One in particular can have very real negative impacts in the form of tax penalties or unexpectedly large amounts owed at tax time. When you take a distribution from an IRA, 401(k), or other tax-deferred account, the withdrawal amount is categorized as ordinary income. This is added up along with all of your other income in that year to determine the amount of taxes you owe.
Consider the example of an individual who expects to be in the 24% federal marginal tax bracket. If they take a $10,000 distribution from their IRA at year-end, and choose to withhold no taxes on that distribution, they are looking at a potential additional tax bill of $2,400 to the federal government, plus any applicable state taxes, penalties, and additional taxes owed.
By planning ahead, we can “gross up” a withdrawal, so a percentage is withheld, preventing future surprises. This is done by analyzing the previous year’s tax return and calculating the current year’s estimated income sources and deductions. We can arrive at a suggested range of withholding amounts that would mitigate the aforementioned penalties and additional taxes owed when year-end filing comes around.
As they say, the only certainties are death and taxes. Our goal is to use strategies in our retirement distribution planning to make the latter a little easier for our clients. If you’re taking periodic withdrawals from tax-deferred accounts, or plan to soon, please reach out to your HH advisor to make sure your withholdings are in good order.
Disclaimer:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
