At Carlson Capital Management, our Tax Team is an integral part of our highly strategic approach to wealth management—one that integrates the disciplines of investment, estate, tax, retirement, insurance, and philanthropic planning. Can we process your tax return? Absolutely. We file more than 1,000 returns each year through our commonly held affiliate CCM Tax & Trust Administration, and we’re happy to help with your return, too. But we deliver the most value to our clients when working in collaboration with colleagues across the firm to provide proactive, comprehensive tax planning. Time and time again, our clients derive significant value in our tax bracket management planning—especially in the years leading up to retirement.
So, what is tax bracket management? At its core, it’s about minimizing tax liabilities to maximize after-tax returns. With a robust knowledge of tax law and the depth of the tax brackets, along with a keen understanding of our clients’ cash flow, estate, and philanthropic goals, we’re able to recommend
strategies that best support their goals—smoothing out their lifetime tax experience by moving income from high income years to low income years and deductions from low income years to high income years.
A Case Study
The chart below shows an example of the opportunity available when this individual stops working (2023–2026) and, due to their age, isn’t required to take Social Security or RMDs. During these years, there is a significant tax opportunity to accelerate some income to take full advantage of a lower tax rate.
Through tax planning and coordination with our integrated team, it’s determined that executing a Roth conversion will be advantageous—in other words, taking a distribution from a traditional IRA and rolling it over to a Roth IRA to create a taxable event. By accelerating income in low income years, and paying taxes on it at a lower rate, we’re able to flatten out peak tax years, paying less in taxes overall.
Although the strategy itself is fairly straightforward, it must be thoughtfully considered for each client’s unique circumstance. Considerations must include the tax rate differential, the effective rate of paying for a Roth conversion now versus what it might be in the future, as well as the time horizon for tax-free growth of the Roth IRA. It is truly our pleasure to provide customized tax recommendations that help our clients deploy their wealth in the ways that are most important to them.
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.