Tag: Tax and financial 

Planning for Retirement Utilizing Tax Minimization Strategies


Tax Planning for Retirement Planning

How much savings is right for retirement, of course the more the better. This is so you don’t have to feel monetarily strapped at any point. To accumulate a comfortable retirement fund, the best place to start is to ensure we understand what we are planning for.

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Saving money is a great virtue. In fact, you may be like many and decide to max out your 401K or individual retirement accounts (IRA) for tax saving and pension planning purposes.


The biggest reason why people put the maximum amount in their retirement accounts is to pay less tax today. But in the long – run, this isn’t always the best place or it needs to be paired with more independent planning options. It’s important to understand the strategies available to you.


Various options for Retirement Plans


There are two main types of retirement plans: Qualified Plans and Non-qualified Plans. The former is tax deductible, and the latter cannot be deducted on your taxes.


▼Qualified Plans mainly include 401Ks or 403Bs, traditional IRA (Individual Retirement Account), SEP IRA, etc. Qualified plans can be tax deductible, but there are caps on tax deductible investments. You cannot put more money in than the limit, and you can’t engage in discrimination, which the plan administration ensures.This means some limits are the same for qualified individuals. (If you have ownership in your company, check with your plan administrator or financial planner to understand the criteria you must follow.)


▲Non-qualified plans are not tax deductible, but many non-qualified plans do not have an upper limit on how much money you can put (such annuities). The Non-qualified Plan also includes Roth IRA (which does have limits), deferred compensation plans, annuities and life insurance. Non qualified plans have the benefit of tax deferred growth and access tax-free oftentimes because you don’t get the original deduction. Check with your specific plan administrator or financial advisor to understand your exact plan details and what benefits you most. Often clients do multiple strategies to complete the various parts to their financial planning.


Both the Qualified Plan and the Non-qualified Plan have certain tax benefits. They can all be tax deferred, some are tax deductible, and some are not taxed when they are taken out (such as Roth IRA). You will pay the tax either way, but if you get the tax deduction up-front such as on a qualified plan, then you pay taxes at withdrawal.

To the contrary, if you don’t get a deduction up front, such as on a non qualified plan, then you can access your funds tax-free.


Of course, you can also invest in mutual funds, stocks, or real estate as a retirement fund, but these strategies may not enjoy the same tax benefits.


There are also Qualified Plans such as Defined Benefit Plan, which can enjoy tax credits of up to $100,000 and 200,000. This kind of plan sounds attractive, and is suitable for a select person who’s financial situation supports it.

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Retirement Planning

Several commonly used retirement plans are discussed in detail below.



Most large and medium-sized companies provide employees with 401K plans. The 401K plan is a plan in which employees make their own contributions. Employees volunteer to invest up to 15% of their annual income and up to $19,500 (2020) into a 401K. (These numbers tend to change slightly ever year)


The limits typically change year to year. The money invested in the 401K plan can be tax deductible, and the portion invested in 401K can be deducted with the year-end tax return. For working-class people, 401K is the most common type of retirement plan.


There is also the option of Roth401K, that is, you put the after-tax money in the 401K plan, so that there is no benefit of tax deductions up front, but its income will never be taxed; and the company generally also provides a match. The match is not typically on your entire contributions. Even the most competitive companies like Google usually max out the dollar for dollar matching at 6% of this plan contribution. It’s important to check if your company has any matching programs, and specifically what it covers. This is free money you will very likely want access to up to the match limit.

To sum up the difference between 401K and Roth 401K is that one is pre-tax and the other is after-tax; one is required to pay tax when it is taken out, and the other is not taxed when taken out.


If you are at the beginning of your career and expect that your future salary and tax burden will exceed the present, and your investment will grow for many years, then it is recommended to choose Roth401K, if your company offers it; if your current income is very high, then the tax credit is more important to you, just utilize the traditional 401K to reduce your tax liability.

If you are unsure or if your company does not offer the Roth 401k options, please contact Boracchia Wiviott Wealth Partners and our team of highly qualified individuals can set up either plan.


The retirement plan 403B provided by hospitals and schools, which it has a different name,403b; it is like the 401K.

IRA and 401K

Traditional IRA

Some companies do not provide any retirement plans, $6,000 per year can be invested and once you are over age 50 you can invest $7,000. (Again these amounts change, please consult your CPA for the latest.) The money invested in a traditional IRA can be tax deductible or tax deferred.

Another financial hack is that if one spouse works and the other does not work, the working spouse can also open a traditional IRA for the non-working spouse.


Roth IRA

Roth IRA is a retirement plan launched in the past ten years that typically benefits those who are starting out.

It stipulates that individuals whose annual income (AGI) is less than $137,000 and those whose annual income (AGI) is less than $203,000 can open a Roth IRA retirement account.

These are the numbers for 2020 in which you can invest $6,000 each year, and $7,000 if you are over age 50. Like the Roth 401K, any money invested in a Roth IRA is not tax deductible. This means the income generated during the investment process is not taxed when it is taken out for retirement either. Roth strategies work best for those who have income that is increasing.

If you have other Qualified retirement plans, whether to open a Roth IRA depends on the overall financial planning of your family, the balance between the retirement plan contributions and other obligations like the children’s education fund, and the current Cash Flow, to name a few. Suffice to say if your income is increasing, the Roth is likely your best choice.

It’s important to note while the Roth has limitations on how much money you can make to be able to take advantage of the tax deferred dollars, there are ways to get around this. You must work with a qualified financial planner like Boracchia Wiviott Wealth Partners.


SEP plan

SEP plan is the Simplified Employee Pension plan, which is mainly intended for the self-employed, such as small company owners, or people who receive a Form 1099. Income can also be used to open a SEP. You can use 25% of your annual net income to open a SEP, up to a maximum of $60,000. (Again, limits change from year to year.) Here’s a real-life example: if you are a medical practitioner or an independent consultant, with an annual income of $200,000, you can contribute to a SEP and remove related Expenses, Social Security Tax, Medicare Tax, etc., leaving you a net income of $150,000.

The SEP in this example could have a contribution of $30,000 (150,000 x 20%) to open an account. If you file a tax return of $120,000 (150,000-30,000), you do not need to file a tax return of the $30,000 invested in the SEP. If you can put $30,000 in the SEP every year, you can accumulate approximately $3.99 million in 30 years (assuming a 7-10)% Annual return). The technicalities you just read will be worth it to understand and implement with a professional when you can live your comfortable retirement of whatever it is you wish to pursue.



Annuity is also a kind of retirement plan, but most people do not know it well. They hear it has guaranteed income and it’s true most do. However, the annuity is typically not tax deductible in the traditional sense but it has tax benefits. The taxes can be deferred until withdrawal. At withdrawal a special formula is used to ensure you are essentially taxed only on your “growth” part of your income stream.

Also, there is no upper limit on how much money can be put in the annuity. These three major benefits – the lifetime income that can often be guaranteed, the tax deferral, and the unlimited contributions of annuities make it interesting to explore. There are two main types of annuities:

  • Fixed Annuity. The insurance company guarantees you typically at least 3% interest every year. It may also reach 5%, 6% or even 7%, but generally it will not reach 10%.
  • Variable Annuity. This has a selection of typically 7 or 8 mutual funds to select, given the client’s tolerance for risk. This is a relatively new type of index annuity that can achieve growth without losing more than a floor of money and lock in the highest value when withdrawing money.

The above-mentioned various retirement plans have their own advantages and disadvantages. Qualified plans can be tax deductible, but there are restrictions on how much you can contribute. Annuities are not tax deductible, but there is no limit on how much you can put in and you do not have to worry about double taxation either.


In any qualified retirement plan, you must wait until age 59 and a half before you can take out your money (with a few exceptions). Life insurance is not a retirement plan, so there is no restriction that you must wait until the age of 59 and a half to take out money. 


Whole Life Insurance

Some people utilize traditional whole life insurance for their retirement. This is usually reserved for more high-net worth individuals as it has Roth-like tax benefits. It also has a set period to be paid for, and clients should not deviate from that set period or they will have a strong chance of losing a portion of their money.

The reason many banks and institutions utilize it for their top executives and high net worth families also like it is because it has a fixed rate that is guaranteed by the insurance companies. The premiums payments are paid into the policy for fees for the insurance but over time those costs are significantly low. Thus the longer the policy is held, the more of your premium payments go into the account value.

As it is life insurance and not an investment, there are tax benefits and also death benefits. Whole lief insurance pays a death benefit and as we discussed, also has reserve funds in which money can accumulate tax-free and at relatively competitive dividend rates. Whole life insurance is not to be confused with other types of insurance such as universal or term. It is also important you work with a financial planner who is your fiduciary.



in sum, the traditional IRA, Roth IRA, and SEP must be opened before April for their contributions to count towards your tax filings. There is no time limit for annuities or whole life insurance (unless they are inside your retirement plan). Remember: The earlier you take out life insurance, the better, because it is based on your age, health and avocations. Investments don’t have such requirements.

As with anything financial, it’s important to first talk with a licensed professional before starting on any of the plans we discussed. Particularly in retirement planning, you must work with a fee-based financial planner who has a signed contract with you to work in your best interest. Otherwise you may be stuck with simply a sales person who doesn’t have the same requirements and gets paid more on certain strategies.

Start now in whatever you do, Boracchia Wiviott Wealth Partners is a fee-based financial planner and as such, only takes on clients who we are fiduciaries for. With us, your money can grow exponentially by the time you need it!

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