News and Commentary

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

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 spending. Failure to consider the tax implications of any estate or financial plan component may negatively affect expected returns and result in significant tax liabilities.

Tax Terms to Know

Few things in life 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 2023, the annual gift tax exclusion is $17,000 for individual taxpayers or $34,000 for married couples filing joint returns. Any gifts above these exemption amounts will be subject to a 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 2023, individual taxpayers may transfer up to $12.92 million in assets to their heirs during life or at death without incurring federal estate or gift tax, or $25.84 million for married taxpayers filing jointly. With this generous exemption limit, only a small fraction of ultra-high-net-worth families will be subject to the death tax.

Similarly, the tax laws allow individuals to give an unlimited number of gifts on behalf of an another person in the form of tuition paid directly to a private school or post-secondary school or as medical expenses paid 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 subject to tax. Under current law, individuals may no longer claim personal exemptions on their annual tax returns, but they can take advantage of the standard deductions, which, in 2023, is $13,850 (or $27,700 for married couples). In addition, taxpayers may be able to reduce their income tax bills when they itemize deductions, including making gifts to charities, paying medical expenses and state and local income/sales/property taxes that fall below the new law’s thresholds.

Individuals planning for retirement 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 2023, the contribution limits are $22,500 for 401(k)s and $6,500 for traditional IRAs when the account holder is under age 50. Earners over 50 can make additional contributions of $7,500/$1,000 annually to their 401(k)/IRA, respectively.

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.

For example, individuals at the prime of their earnings potential can contribute up to $22,500 in pre-tax dollars to a 401(k) in 2023 and reduce their taxable income for the year by that amount. Those contributions grow tax-deferred until account owners reach retirement age, when distribution will be subject to tax. At that point, however, account owners will likely be in a lower tax bracket and can benefit from a lower tax rate.

With tax-exempt retirement accounts, such as Roth IRAs, individuals can make a 2023 contribution of up to $6,500 in after-tax dollars. This means that taxes are imposed on the contribution amount, but investment growth and qualified distributions investors take after age 59½ are tax-free as long as the account has existed 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 type of 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. However, the tax consequences of doing so will depend on an individual’s unique circumstances during the year of the conversion. If completed 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, account owners who make conversions in a year in which they incur 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., Member 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. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

 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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Posted on August 15, 2023