Financial Model Blog

Retirement Savings - More options than you think

Published June 21st, 2022 by Constantine J Kitrinos, CPFA

It's NOT one or the other

Rid yourself of some or all taxes

Most of our clients and followers already know about certain retirement hacks you should be thinking about in markets like we're facing right now. Even though most of us remember them when we're reminded, it's a topic worth revisiting. You know there are choices in most of your retirement plans at work. You choose to have money held out of your paycheck to invest in the income your future self will use in retirement. We call those retirement plans and they come in all sorts of flavors; 401(k), 403(b), 457, and so on and so forth.


We handle tons of small to mid-sized companies' retirement plans and work with the business owners and sponsors to draft the plan design. There are tons of choices they make for their staff long before any notices go out and the plan goes live. We put a ton of effort into plan design to meet the needs of the employees and customize the chassis. With that being said, our focus is on the pre and post-tax options. Roth options are not right for every single person. You'll want to discuss things with your CPA or accountant to make sure you're making the right choice for your circumstance.

We often get asked how much a person should be saving. Is it a fixed dollar amount, a percentage, and what are 401(k) plans paying these days? First, the amount of savings varies quite a bit depending on your lifestyle, time horizon until retirement, and how much income you'll need when you decide to call it quits. Percentages tend to work out best as they'll adjust based on your earned income versus a flat and stagnant amount that requires you to make changes manually. Above and beyond is to ensure that you're revisiting your deferral percentage each and every year. If you're able to afford it, increase your savings by at least one percent until you max out.


Once you set up your deferrals, you're going to look at savings to defer taxes or square up right now. Making pre-tax elections allows the participant to defer taxes and save towards their retirement goals. That can be a great option for high-income earners who are looking for the reduced tax liability. It's a good choice with an immediate incentive so it has some level of reward you don't have to wait years to realize.


Choosing to pay the taxes now and draw income-tax-free, later on, can be an enticing consideration. You may have to do a bit of guessing when it comes to the impact of the tax benefits. Ask yourself if you see yourself in a tax bracket that's higher or lower in retirement. It's not often that brackets go lower, but it's not that simple. You have to consider how old you'll be when you retire and what your income sources look like. Things like social security, pensions (if you're lucky), non-retirement investments, real estate, or business income.

Our blog title implies that you have more than just pre-tax and post-tax options and that's true. We get this question every now and again, but you are able to choose both if your plan allows. Most of the plans we work with have a Roth component to them and if it's a plan design we're helping clients with, it will allow the participants to make this choice. You could make the choice to save part pre-tax and some post-tax. This choice will give you an immediate benefit with the reduced tax liability today and tax-free distributions when you take money out.


Where does that leave plan participants with respect to their company match or profit-sharing? That's a great question and it often leaves employees confused. Your savings option has no bearing on the company match or profit share. That's right, those employer contributions are always made on a pre-tax basis. It's nothing you can change, but it's good to know because you may think your election to contribute 100% in a Roth 401(k) will leave you a nest egg that's completely income tax-free. That's not the case. Your company's contributions will get taxed down the road. If you're one of the lucky employees that have a company willing and able to help contribute to your retirement plan, embrace it. Be sure you contribute enough to max out the company matching incentive and give yourself that well-deserved raise you've worked hard for.


And that's only the beginning...Reach out and schedule a consultation to discuss your situation. We'll walk you through your options and help you make the right choice for your goals. Click below to take a listen to the latest PennyWise Financial Podcast and hear more commentary on the stuff you need to know, and much more.

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Taxes on the move

Photo by Kelly Sikkema on Unsplash

Things have been a little less than concrete since the pandemic and the IRS isn't much different when it comes to tax returns and reform.  What changes should you know about and discuss with your tax professional?  Below are a few things to consider...

1. Relax and enjoy Some Extra Time to File...well - Maybe

We have mentioned in previous blog posts that the deadline to file your return and make those payments has shifted to May 17th.  This was done to help us all as some Americans struggle more than others through the pandemic.  More than likely the IRS is behind schedule as well.  Great news for those of us who like to drag our feet and get things done.  Don't forget to check your state deadline versus the federal extension as they don't necessarily match.

2. More time for...

Let's not forget the people who like to delay filing or request an extension typically wait till the last minute to fund their IRA's and other tax-advantaged accounts.  More time to file means more time to save and that includes your contributions to IRA's, HSA's, and college savings plans.  

3. What about estimated tax payments?

The news about the extension is more time to file, get your tax documents in order, and carefully file for an accurate return.  The delayed filing deadline applies to those who pay estimated tax, but it does NOT delay the due date for estimated payments to be made.  

4. Understand the power of paying now versus later

You might be like a ton of us who hear tax savings today, reduce your tax bill now, and other ways of using tax deferral and tax deductions to help your situation.  Talk to your tax advisor and if your younger, have a long time horizon, the benefits of prepaying taxes now eliminate 100% of the tax down the road.  Of course, we're talking about Roth IRA or Roth 401(k) contributions. 

5. Knowledge is power

Talk to your tax person about any legislation changes, deadlines, or strategies.  If you don't have a trusted CPA or tax professional - get one!  Find someone you trust and can relate to.  Fee schedules vary quite a bit and the advice they give can be quite different as well.  There are a ton of variables to consider so like most consulting it is more of an art than a science.  If things were as simple as using a formula, everyone would use the same calculator and do what's best for their situation.


Disclaimer: The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by Basch Solutions to provide information on a topic that may be of interest. Basch Solutions is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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