Momentum - Business to Business Online Magazine MOMENTUM March 2020 | Page 24

FINANCIAL FOCUS
KRISTI TREVINO
Financial Advisor
Edward Jones
www.edwardjones.com/kristi-trevino
Are Your FINANCIAL AND
TAX ADVISORS Talking?
N
ow that we’ve closed the book on 2019,
it’s officially Tax Season. As you prepare
your tax returns for the April 15 deadline,
you might already start looking for
opportunities to improve your tax-related
financial outcomes in the future. And one important
step you can take is to connect your tax professional
with your financial advisor. Together, these professionals
can help you take advantage of some valuable
strategies:
• Roth vs. traditional IRA – If you’re eligible to
contribute to a Roth IRA and a traditional IRA, you
might find it beneficial to have your financial advisor
talk to your tax professional about which is the better
choice. Generally, if you think your tax rate will be
higher in retirement, you might want to contribute to
the Roth IRA, which provides tax-free withdrawals (if
you’re older than 59 ½ and have had your account
at least five years). But if you think your tax bracket
will be lower when you retire, you might be better
off with the traditional IRA, which offers upfront tax
benefits – specifically, your contributions may reduce
your annual taxable income in a given tax year. Your
tax advisor may have some thoughts on this issue, as
well as how it might fit in with your overall tax picture
in retirement.
• Taxable vs. non-taxable income – Turning taxable
income into non-taxable income can lower your
current year’s tax bracket. Depending on your
income, you could potentially subtract your
traditional IRA contributions (or your SEP-IRA
contributions if you’re self-employed) from your
taxable income. And even now, it’s not too late to
affect the 2019 tax year, if you still haven’t reached
the IRA or SEP-IRA contribution limits. Before you
file your 2019 tax returns, your tax professional can
tell your financial advisor how much you would
have to contribute to your traditional IRA, SEP-IRA
or similar account to potentially lower your taxable
income. If you make the contribution, your financial
advisor can illustrate how it would impact your
retirement picture and make a recommendation on
how to invest the money. (You can fund your IRA
with virtually any type of investment – stocks, bonds,
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MOMENTUM
mutual funds, and so on.)
• Capital gains taxes on mutual funds – You might
think you have total control over taxes related to
your mutual funds. After all, you decide how long to
hold these funds before selling shares and incurring
capital gains taxes. However, mutual fund managers
are usually free to buy and sell new investments as
they see fit, and some of these sales could generate
capital gains taxes for you. If these taxes are
relatively large in any one year, your tax professional
may notice and could relay this information to your
financial advisor. This doesn’t necessarily mean these
mutual funds are inappropriate for you; they still may
be suitable for your goals, risk tolerance and time
horizon. But the tax aspect may be of interest to your
financial advisor, who might recommend more tax-
efficient investment options.
Your investment and tax pictures have many
overlaps, and by ensuring your team of advisors is
working together, or at least communicating with each
other, you can increase the chances of getting your
desired results.
This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor.