What’s the difference between tax preparers and tax planners? Generally speaking, tax preparers look backward, examining what happened over the past year as they get your tax return ready to submit. Tax planners look forward and are usually retirement plan consultants who work with you to plan for income and potentially reduce your taxes in retirement.
At Hoss Financial, our team of experienced retirement plan consultants can help you implement proactive tax planning. To do this, we employ our 3 Tax Bucket Strategy. Your tax plan will incorporate retirement savings that fall into one of three buckets:
Bucket 1: Taxable Bucket
In this bucket, you’ll find investments and accounts that are taxable on an annual basis. A few of the accounts in your taxable bucket might include capital gains, dividends and interest earned.
Bucket 2: Tax-Deferred Bucket
Your tax-deferred bucket includes accounts that aren’t taxed until you begin taking distributions (usually in retirement). These accounts might include traditional IRAs, a 401(k), 403(b), 457(b), annuities or other qualified accounts designated for retirement.
Bucket 3: Tax-Free Bucket
You’ll put any accounts that are not taxed at time of withdrawal in your tax-free bucket. This bucket might include a Roth IRA, life insurance payouts or portions of your Social Security benefits.
Our job as financial planners and financial advisors is to help you understand how to fully utilize these buckets. The goal is to maximize your income and minimize your taxes, allowing you to make the most of your retirement plan and prepare your estate for your heirs.