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Income, Estate and Retirement Planning with Taxes in Mind UPDATED by Eric P. Zeitlin

Posted on January 03, 2018

Engaging in estate and financial planning without paying attention to taxes can be a fool’s errand. Tax awareness can be tantamount to all aspects of saving, investing and even spending. Failure to consider the tax implications of any component of an estate or financial plan may negatively affect expected returns and may result in significant tax liabilities.

Tax Terms to Know

There are few things in life that are tax-free.  However, under the U.S.’s estate and gift tax laws, individuals may have an opportunity to annually gift cash or assets to as many people as they choose free of transfer taxes. For the 2018 tax year, this annual gift tax exclusion is $15,000 for individual taxpayers, or $30,000 for married couples, amounts that are adjusted each year for inflation. Any gifts above these exemption amounts will be subject to 40 percent tax.

In addition, the U.S. tax system provides individuals with a lifetime estate and gift tax exclusion that is indexed annually for inflation. For 2018, individual taxpayers may transfer up to $11.2 million in assets to their heirs during life or at death without incurring federal estate or gift taxes, or $22.4 million for married couples.

Tax-advantaged gifts enable individuals to reduce the value of their estates and potentially eliminate exposure to the estate tax when they pass away. However, with the passage of the Tax Cuts and Jobs Act and its generous increase of the estate tax exemption from 2017 levels, only a small number of ultra-high-net-worth families will be subject to the death tax.

Similarly, the tax laws allow individuals to give an unlimited amount of gifts in the form of tuition paid directly to a private school or post-secondary school on behalf of another person, or as payments of medical expenses directly to a health care provider on behalf of another person.

Conversely, individuals may claim income tax exemptions or income tax deductions, which can reduce, or in some cases, eliminate the amount of income that is subject to tax. For example, under the Tax Cuts and Jobs Act, an individual taxpayer may no longer claim a personal exemption on their annual tax returns, but he or she may take advantage of a standard deduction that nearly doubles in 2018 to $12,000 (or $24,000 for married couples). In addition, taxpayers may be able to reduce their income tax bills when they itemize deductions for gifts to charity, pay medical expenses and/or state and local income/sales/property taxes that fall below the new law’s thresholds.

When planning for retirement, individuals should become familiar with the terms tax-deferred and tax-exempt accounts. Tax-deferred retirement accounts include 401(k)s and traditional IRAs, which allow individuals to take immediate tax deductions on the full amount of their contributions. For 2018, the contribution limit, which is adjusted annually for inflation, is $18,500 for 401(k)s and $5,500 for traditional IRAs when the account holder is under age 50. Earnings for these plans grow tax-deferred until account holders turn 59½, at which point they may take taxable withdrawals. Distributions an investor takes before reaching this age will be subject to a tax penalty unless an exclusion applies. Earners over 50 years old continue to be able to add an additional $6,000/$1,000 annually to their 401(k)/IRA, respectively.

For example, an individual at the prime of his or her earnings potential could contribute the maximum $18,500 in pre-tax dollars to a 401(k) in 2018 and reduce his or her taxable income by that amount for the year. The tax liabilities on those contributions and account growth will not be due until the individual takes distributions in retirement when he or she will potentially be in a lower tax bracket and can benefit from a lower tax rate.

With tax-exempt retirement accounts, such as a Roth IRAs, individuals could make contributions of up to $5,500 in 2018 with after-tax dollars. This means that taxes are imposed on the contribution amount in the year it is made. However, investment growth and qualified distributions that investors take after age 59½ are tax-free, as long as the account has been in existence for five or more years.

The funding and tax liabilities associated with retirement accounts can get tricky when individuals consider that U.S. tax laws have allowed them to convert one form of an account to another during their lifetimes.

For example, a taxpayer with a traditional IRA may make pre-tax contributions for multiple years and, at some point in the future, convert that plan to a Roth IRA to yield the benefits of tax-free withdrawals during retirement. The conversion is considered a distribution and therefore is reportable as ordinary income in the year of conversion. The tax consequences of doing so, however, will depend on an individual’s unique circumstances during the year of the conversion. If it is done in an otherwise profitable year, the income recognized on the conversion will increase the adjusted gross income and create an additional tax liability. In contrast, an account owner who makes a conversion in a year in which he or she incurs a net loss may instead apply that loss to offset the taxable income of the rollover.

Individuals seeking to build and preserve wealth should meet with experienced financial advisors to assess how their decisions fit into a comprehensive, well-thought-out plan, including the potential tax implications of their actions.


About the Author: Eric P. Zeitlin is managing director of Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services.  For more information, call (954) 712-8888 or email


Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Eric P. Zeitlin is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members FINRA/SIPC.


Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. Financial advisors of Raymond James Financial Services are not qualified to render advice on tax or legal matters. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.


401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Consult your tax advisor to assess your situation Converting a traditional IRA into a Roth IRA has tax implications.


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investments mentioned may not be suitable for all investors. Hypothetical examples are for illustration purposes only and do not represent an actual investment.

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