Retirement is a time for enjoying the fruits of your labor, but without careful planning, taxes can take a significant bite out of your nest egg. Anthony Fontana of Pittsburgh, a seasoned Financial Planner with Fontana Financial Services, whose practice specializes in the distribution phase of retirement, emphasizes the importance of adopting tax-efficient investment strategies to help retirees maximize the longevity of their money so they don’t find themselves back to work in their later years. Minimizing their tax burden is one of these strategies. This article will explore key strategies such as using tax-advantaged accounts, investing in municipal bonds, and managing capital gains effectively.
Understanding Tax-Advantaged Accounts: A Key Insight from Tony Fontana of Pittsburgh
One of the most effective ways to minimize taxes in retirement is to make the most of tax-advantaged accounts. Anthony Fontana of Pittsburgh advises that retirees should consider using Roth accounts such as Roth IRAs and Roth 401(k)s, which allow for tax-free withdrawals in retirement, provided certain conditions are met. These accounts are particularly beneficial for retirees who may unexpectantly end up in a higher tax bracket in the future or who want to manage their tax liability more predictably. These strategy may also reduce or eliminate taxation of social security which is really exciting to know that it may be possible to be in the 0% tax bracket and unaffected by the unknown future of tax-rates.
Tony Fontana of Pittsburgh also highlights the importance of taking required minimum distributions (RMDs) from traditional IRAs and 401(k)s. Failure to do so can result in hefty penalties, but by carefully planning RMDs, retirees can spread out their tax liability and potentially reduce the overall tax burden. Additionally, if retirees are able to use the above strategies to generate tax-free income and leave an adequate amount in there tax deferred accounts so that IRS RMD standards are meet in conjunction with standardize deductions not only would they avoid tax liability but they would have truly avoided paying any tax on this money.
Investing in Municipal Bonds: A Strategy Suggested by Anthony Fontana of Pittsburgh
Municipal bonds, also known as “munis,” are another tax-efficient investment option that under certain circumstances, Anthony Fontana of Pittsburgh recommends for retirees. These bonds are typically exempt from federal income tax and, in many cases, from state and local taxes as well, making them an attractive option for retirees seeking tax-free income.
Tony Fontana of Pittsburgh notes that while municipal bonds tend to offer lower yields compared to taxable bonds, the tax savings can more than make up for this difference, especially for retirees in higher tax brackets. When selecting municipal bonds, it’s crucial to consider the credit quality of the issuing municipality and the overall economic environment to ensure a stable and reliable income stream.
Managing Capital Gains: Insights from Tony Fontana of Pittsburgh
Capital gains can significantly impact a retiree’s tax situation, but with proper management, these taxes can be minimized. Anthony Fontana of Pittsburgh suggests that retirees adopt a strategy known as “tax loss harvesting,” where investments that have declined in value are sold to offset gains from other investments. This approach can help reduce the taxable income from capital gains, thereby lowering the overall tax bill.
Another strategy that Tony Fontana of Pittsburgh recommends is to hold onto investments for more than a year before selling them. Long-term capital gains are taxed at a lower rate compared to short-term gains, which are taxed as ordinary income. By holding onto assets for the long term, retirees can take advantage of these lower tax rates, which can lead to substantial tax savings over time.
Diversification and Asset Location: Anthony Fontana of Pittsburgh’s Strategy for Minimizing Taxes
Diversification is a cornerstone of any sound investment strategy, and Anthony Fontana of Pittsburgh advises that retirees should also consider asset location as part of their tax-efficient investment plan. Asset location refers to the practice of placing different types of investments in the most tax-advantaged accounts available.
For example, Tony Fontana of Pittsburgh suggests holding income-generating investments, such as bonds or dividend-paying stocks, in tax-deferred accounts like traditional IRAs or 401(k)s. This allows the income to grow tax-free until it is withdrawn in retirement. Conversely, investments that are more likely to appreciate, such as stocks, may be better placed in taxable accounts where long-term capital gains rates apply.
Contractual guarantees are better for a sound retirement plan: Anthony Fontana of Pittsburgh helps clients “insure” the portion of their retirement they need to support their lifestyle.
FIAs, otherwise known as fixed indexed annuities, are the topic of many controversial conversations of news articles, TV commercials, and well-known podcasters, and for good reason. Anthony Fontana of Fontana Financial, Pittsburgh, PA, has used and studied these insurance products for over seven years. He says, “There is no one size fits all ANYTHING in life. When written by a financially strong and responsible insurance carrier and by a Financial Planner with years’ experience, these products can give clients a feeling of security and certainty throughout retirement.” FIAs are insurance products that contractually guarantee things like Principal Protection from market decline while providing the potential for positive returns. What’s better than making a return, not losing it next year. The other contractual guarantees they provide are lifetime income payments that can extend both spouses’ lives. When you have guaranteed principal protection and guaranteed lifetime income, leaving some of your retirement in the fluctuating market is less painful when the market tanks. You can choose to follow that old adage of “just ride it out” because chances are you have other resources to pull from, so you won’t have to lock in losses by selling stocks at a discounted rate. You’ll be better positioned to weather economic storms and create longevity in your retirement.
Why do FIAs get such a bad reputation in certain circles?
There are several reasons FIAs are spoken poorly of, the most common being a lack of understanding and education about how they work and how they are properly used. Individuals who only hold an insurance license, which is the minimal requirement to write annuity, by law (SEC Reg BI) cannot advise clients on their retirement for a fee, only on the FIA as a product. This puts the client at a disadvantage because then they must understand how the FIA works best for them or seek the advice of a licensed Financial Planner, which could incur additional fees. Understanding these nuances can empower you to make informed decisions about your retirement planning.
FIAs are somewhat complicated in how they work, and there are literally hundreds, maybe over a thousand, of these products in the marketplace today. It really takes some years to learn which companies are managed well financially, have the best technology, and offer great customer service. All these factors matter when you are dealing with clients’ retirement accounts.
Charitable Giving and Tax Efficiency: Advice from Anthony Fontana of Pittsburgh
Charitable giving is another way retirees can reduce their tax burden while supporting causes they care about. Anthony Fontana of Pittsburgh recommends strategies such as qualified charitable distributions (QCDs), where retirees can donate up to $100,000 directly from their IRA to a qualified charity. This donation counts towards the RMD but is not included in taxable income, providing a dual benefit.
Tony Fontana of Pittsburgh also advises considering donating appreciated assets instead of cash. By donating assets like stocks that have increased in value, retirees can avoid paying capital gains taxes on the appreciation while still receiving a charitable deduction for the full market value of the asset.
The Importance of Regular Reviews and Adjustments
Anthony Fontana of Pittsburgh emphasizes that tax laws and personal financial situations can change, so it’s essential for retirees to regularly review their investment strategies and make adjustments as needed. Staying informed about changes in tax laws and working with a financial planner like Tony Fontana of Pittsburgh can help ensure that retirees are always in the best position to minimize taxes and maximize the longevity of their retirement income.
By implementing these tax-efficient investment strategies, retirees can significantly reduce their tax burden and preserve more of their hard-earned savings. Whether it’s through the use of tax-advantaged accounts, investing in municipal bonds, managing capital gains, or contractually guaranteeing parts of their retirement, Anthony Fontana of Fontana Financial Services, LLC, Pittsburgh provides invaluable insights into how retirees can optimize their financial strategies for a more secure and enjoyable retirement.
Reach out to Tony directly at https://www.fontanafinancialservices.com/
Brookstone Disclosure
Investment advisory services are offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and Fontana Financial Services, LLC are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.
Insurance Disclosure:
Insurance products are offered through the insurance business Fontana Financial Services, LLC. Insurance product guarantees are backed by the issuing carrier’s financial strength and claims-paying ability, not Fontana Financial Services, LLC. Fontana Financial Services, LLC is also an Investment Advisory practice that offers Investment advisory services through Brookstone Wealth Advisors, LLC (BWA), a registered investment advisor and an affiliate of Brookstone Capital Management, LLC. BWA and Fontana Financial Services are independent of each other. Insurance products and services are not offered through BWA but are offered and sold through individually licensed and appointed agents. The insurance products offered by Fontana Financial Services, LLC are not subject to Investment Advisor requirements.
