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Tax Saving Solutions for Required Minimum Distributions 11.05.2021

How would you like to be FORCED to take extra, unwanted, and unnecessary taxable income that would ADD TO your taxable income for the year and potentially catapult yourself into a higher income tax bracket?

If you are 72 or older and own an IRA or tax-deferred retirement account and receive required minimum distributions (RMDs), this may be happening to you every single year. If you are not yet 72, take this as fair warning – you have time to plan and put some tax saving solutions in place!

Towerpoint Wealth | Sacramento Financial Advisor near me | Money Bucket Tax Saving Solutions

Many individuals know well enough that RMD taxes are a “necessary evil” of contributing to, and investing in, retirement accounts such as 401(k)s, IRAs, 403(b)s, etc. However, what investors often fail to realize is that there are impactful and proactive tax planning strategies that can materially lessen the sting of these RMD taxes.

Towerpoint Wealth | Sacramento Financial Advisor | Keep Your Money-Tax Saving Solutions Required Minimum Distributions

As discussed below, short of enacting a QCD every year for the full amount of your RMD (do the acronyms have your head spinning yet??!!), there is no way to outright avoid paying income taxes on your IRA and retirement account RMDs. However, at Towerpoint Wealth, we are proactive in working with our clients to reduce the pain associated with RMD taxes if and when possible, usually utilizing one or more of the following three planning opportunities, each of which can help:

Tax Saving Solutions

1. Accelerate IRA withdrawals

We get it, as this sounds counterintuitive. Take more money out to save on taxes?? The short answer – yes.

Subject to certain exceptions, age 59 ½ is the first year in which an individual is able to take a distribution from a qualified retirement plan without being subject to a 10% early withdrawal tax penalty.

Consequently, the window of time between age 59 ½ and age 72 becomes an important one for proactive RMD tax planning. By strategically taking distributions from pre-tax qualified retirement accounts between these ages, an individual may be able to lessen their overall lifetime tax liability by reducing future RMDs (and the risk that RMDs may push them into a higher tax bracket) by reducing the retirement account balance.

This strategy becomes particularly opportune for an individual that has retired before age 72, as it often affords the individual the ability to take these taxable distributions in a uniquely low income (and lower income tax) period of time.

2. Execute a Roth conversion

Roth conversion is a retirement and tax planning strategy whereby an individual transfers, or “converts,” some or all of their pre-tax qualified retirement plan assets from a Traditional IRA into a tax-free Roth IRA.

While ordinary income taxes are owed on any amounts of tax-deferred contributions and earnings that are converted, a Roth conversion, when utilized properly, is a powerful tax planning strategy to reduce a future IRA RMD, and concurrently, RMD taxes, as Roth assets are not subject to required minimum distributions since they generate no tax revenue for the government. Further, Roth conversions also 1) maximize the tax-free growth within a taxpayer’s investment portfolio, 2) provide a hedge against possible future tax rate increase (as Roth retirement accounts are tax-free), and 3) leave a greater tax-free financial legacy to heirs.

Towerpoint Wealth | Sacramento Financial Planner | Graph Tax Savings Solutions

3. Use the IRA RMD to make Qualified Charitable Distributions (QCDs)

When an individual becomes subject to an IRA RMD, in lieu of having the IRA distributions go to them, they may consider facilitating a direct transfer from their IRA to one, or more, 501(c)3 charitable organizations (up to $100K annually). This is known as a Qualified Charitable Distribution (QCD).

As long as these distributions are made directly to the charity, they 1) satisfy the RMD and 2) are excluded from taxable income.

This strategy, when executed property, results in a dollar-for-dollar income reduction compared to a “normal” RMD.

Towerpoint Wealth | Sacramento Wealth Management | Charitable Giving Required Minimum Distributions

Fortunately or unfortunately, there is no magic bullet nor panacea when it comes to RMD taxes and the income tax obligation you will have when taking RMDs. However, we feel that you still have an obligation to be aware and/or mindful of the planning opportunities mentioned above, as potentially reducing your income tax liability is certainly better than paying “full boat” every year!

Video of the Week

As a follow up to the subject focus of our most recent 10.15.2021 Trending Today newsletter, click the thumbnail below to watch the educational video we just produced last week, featuring our President, Joseph Eschleman, as he discusses the THREE key ingredients that are crucial when working to successfully build and protect your wealth, and SEVEN specific long-term investing strategies and philosophies that need to be developed and internalized if you truly want to be a successful long-term investor.

What’s Happening at TPW?

We love and are proud of the work hard, play hard culture we have built here at Towerpoint Wealth, and in the spirit of that philosophy, the TPW family took a ½ day “Teambuilding Tuesday” earlier this week, enjoying lunch together at The Station Public House in Auburn, followed by fun and games (literally!) at Knee Deep Brewing Company!

Towerpoint Wealth Family Lori Steve Michelle
Towerpoint Wealth Family Michelle
Towerpoint Wealth Family

Our President, Joseph Eschleman, gave two (!) pints of A- last week, with a “Power Red” blood donation at the American Red Cross in Sacramento.

Graph of the Week

There are just under two months left in the year, and from strictly a seasonal perspective, November and December have historically been two of the better months on the calendar. The chart below shows the S&P 500’s performance during the last two months of the year in the post-WWII period. Overall, the median performance has been a gain of +3.72%, with positive returns just over three-quarters of the time (76.3%).

Towerpoint Wealth | Sacramento Independent Financial Planner | Graph of the Week November 5, 2021

The S&P 500’s 22.6% gain this year is the strongest year-to-date reading through October since 2013. 2021 is just the tenth year since 1928 where the S&P 500 has been up more than 20% YTD through October. In the chart above we have highlighted each of those years in dark blue.

Quote of the Week

It is easy to be an investor when things are relatively “normal” and calm; it becomes much more difficult to be disciplined and stay objective when things get crazy…

Trending Today | Quote of the Week November 5, 2021

Trending Today

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

Click here to Download

Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

Towerpoint Wealth Sacramento Independent Financial Advisor

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Is There a Vax to Protect Your Portfolio From Tax?

2016 survey of 1,000 taxpayers, conducted by WalletHub, found that, if told they never had to pay income taxes again, 27% of respondents would brand themselves with a tattoo that says “IRS” and 11% would gladly drive to Chipotle every single day for three years to clean its toilets. You can’t make this stuff up!

And while there is credible evidence and research that suggests people actually like paying taxes (click HERE to read a Psychology Today article about this “phenomenon”), in our 23+ years helping clients properly build and protect their net worth and wealth, we have yet to encounter a single client, prospect, colleague, or friend who fits this category. While we may intellectually understand why we have to pay them, most of us seem to emotionally detest it.

At Towerpoint Wealth, we recognize (and embrace!) our bias in working with and helping our clients towards achieving the goal of growing and building their assets as intelligently and as efficiently as possible. Understanding there are a myriad of road blocks, speed bumps, and hazards to account for while on this journey, we also recognize and coach our clients to understand that there are two major, and unfortunate, “necessary evils” that stand in the way of accomplishing this goal:

  • Fees, costs, and expenses
  • Taxes

And while neither of these is completely avoidable, intelligently reducing the drag of either one directly helps your portfolio get better gas mileage. Below are two simple examples to illustrate that point:

To be clear, we have encountered those who let the “tax tail wag the dog” and seemingly focus more on tax avoidance than net-worth building; our preference will always be to help our clients maximize their after-tax wealth, which does pair with having a tax bill every year. However, it also pairs with being directly mindful about keeping your obligation to Uncle Sam to an absolute minimum whenever and wherever possible.

The 2020 tax season is right around the corner, and with it will come some inevitable surprises for those who didn’t properly plan, or who were ignorant of certain aspects of and/or changes to their global 2020 income tax situation. And understanding the interest, dividends, and capital gains that will soon be showing up on your 1099 forms, (all of which report taxable income to the IRS), we encourage you to use the resources found at the bottom of this newsletter to your advantage, and to contact us (click HERE) if you encounter any unwanted 2020 “tax surprises,” or feel you would benefit from a fresh perspective on how to leverage and maximize ideas and opportunities to make your portfolio, and your life, more tax efficient.

What’s Happening at TPW?

Our Wealth Advisor, Matt Regan, working hard as usual from home right now, along with little Mason and Stevie, his loyal friend!

Directly reflecting the firm’s culture, Towerpoint Wealth is a family both inside and outside the office, as our Partner, Wealth Advisor, Jonathan LaTurner, our Client Service Specialist, Michelle Venezia, our President, Joseph Eschleman, and our Director of Tax and Financial Planning, Steve Pitchford all enjoyed a fun day hanging out together and watching Super Bowl LV!

TPW Service Highlight – Tax-Managed Portfolio Management

In addition to investment expenses, income taxes are the second of the two necessary evils we face when helping you grow, and protect, your net worth and assets in the most effective and efficient way. Taxes can severely impact investment returns if not monitored, scrutinized, and controlled. And while we never let the “tax tail wag the dog,” at Towerpoint Wealth we do maintain a specific focus on helping our clients absolutely minimize the tax impact of their investments, portfolio, and overall financial decision-making.

Utilizing low-turnover mutual funds, ETFs, and separately-managed accounts, taxable versus tax-free bonds, strategic tax-loss harvesting, tax diversification, and the asset location strategies discussed in Steve Pitchford’s MoneySavage podcast featured below helps us help our clients significantly reduce the income taxes they pay on their investments.

Issuance of 2020 Charles Schwab 1099s 

A brief but important reminder for our Towerpoint Wealth family of clients: Initial Form 1099 production is based on two different waves at Schwab, with the vast majority (85%+) produced in the second wave:

Chart of the Week

The population exodus from high-tax states like California, New York, and New Jersey is very real, as a migration to other, oftentimes lower-tax states happens when individuals do not feel they are getting enough value for the taxes they are paying.

Federal and state income taxes are unfortunately a necessary evil when working to grow and protect your net worth, but working to manage and minimize your “obligation” to the taxing authorities is one of Towerpoint Wealth’s core competencies. Click HERE to message us and learn more about specific strategies to *reduce* your income tax pain.

Trending Today

In addition to tax drag and Super Bowl schwag, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle

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Life Insurance | One Minute Tax Tips

This week’s #OneMinuteTaxTip from our wealth advisor, Matt Regan, who shares an interesting personal message while weaving in why it is so important to consider including #lifeinsurance into your #financialplan.

Watch Matt’s video below to better understand how the #taxfree distribution and #financialplanning benefits that life insurance provides helps to provide peace-of-mind to your important family members, and why there is no time like the present to entertain integrating life insurance into your overall #financial and #wealthmanagement plan.

As always, feel free to email us at info@towerpointwealth.com to discuss if this planning opportunity may make sense for you.

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The Donald vs. Joe – Which Way Will Your Income Taxes Go?

As of yesterday, more than 17 million people across 44 states and Washington D.C. have already voted. It is projected that a record-setting 150 million people will vote in 2020’s presidential election, representing approximately 65% of eligible voters, which would be the highest rate since 1908! As a country, we are truly rocking the vote this year!

For many voters, considering and sorting through all of the complicated issues can sometimes be a confusing and overwhelming responsibility:

As is typically the case, income taxes rank highly on the list of topics important to voters. According to a mid-September Gallup poll, 61% of voters said that the presidential candidates’ position on income taxes was either an extremely important or very important influence on who they vote for.

Understanding the upcoming election will be pivotal when it comes to tax policy, as well as how divergent the two candidates are regarding virtually every single issue, the dichotomy between Trump and Biden in tax policy and philosophy should come as no surprise. Both candidates have a plan, each with far-reaching consequences, for the following:

  • Individual tax rates
  • Capital gains and dividends
  • Individual tax credits and deductions
  • Education tax credits
  • Corporate taxes
  • Payroll taxes
  • Estate taxes

Hungry for more information?

  1. Click HERE for a concise “low down” on each candidate’s position on the major tax issues, courtesy of Grant Thornton.
  2. Click HERE For a fresh (filmed just this morning) take from Michael Zezas, Head of U.S. Public Policy Research at Morgan Stanley, on what Biden and Trump’s tax policy proposals mean for investors, the markets, and the election.

What seems to be clear is that who wins in November could very well spell the difference between cementing the Tax Cuts and Jobs Act of 2017 as a permanentshift in U.S. tax policy, or instead, reversing major portions of this three-year-old legislation in favor of more progressive tax policies.

Either way, let’s not forget that there almost assuredly will be a substantial difference between what is promised on the campaign trail and what actually passes into law!

What’s Happening at TPW?


Lori and Raquel. On Tuesday. Together. With Bob Ross (on the right)! That’s all. 

Our President, Joseph Eschleman (and his wife, Megan Eschleman), and our Partner, Wealth Advisor, Jonathan LaTurner (and his fiancée, Katie McDonald), escaped to Oregon to do some wine tasting in the Willamette Valley this past weekend!

TPW Service Highlight – Tax Minimization Planning

Keeping with the theme of today’s newsletter, we at Towerpoint Wealth believe our energy is best spent helping our clients plan for things we have some control over, while being aware of, but not reactionary to, things we do not. And while paying taxes is as exacting and constant today as it was the day Benjamin Franklin penned his famous Death and Taxes quote in 1789, that doesn’t mean it can’t be planned around and minimized.

We are fortunate to have two team members who are licensed CPAs here at TPW, our Director of Tax and Financial Planning, Steve Pitchford, and our new Wealth Advisor, Matt Regan. Fortunately for us (and our clients!), both Steve and Matt are extremely well-versed and experienced in helping TPW clients reduce the income tax “drag” on their net worth and investments, specifically monitoring and focusing on the following areas:

  • Tax efficient investing
  • Tax loss harvesting
  • Tax legislation updates and changes
  • Asset/investment account drawdown
  • Account withdrawal tax optimization
  • Charitable trust planning
  • Charitable giving planning and analysis
  • Income tax credit and deduction analysis
  • Direct coordination and planning with your CPA/tax advisor
  • Tax return analysis
Steve Pitchford, CPA, CFP®
Director of Tax and Financial Planning
(916) 405-9166
spitchford@towerpointwealth.com
Matt Regan, CPA
Wealth Advisor
(916) 405-9164
mregan@towerpointwealth.com

Graph of the Week

Will it be a landslide, or will it be close? Will it be contested, or will it go smoothly? Reply to this email and let us know what you think!

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Steve, Jonathan, Lori, Joseph, Raquel, Nathan, and Matt