Tax planning strategies

Q: Which account should I take withdrawals from to fund my lifestyle after I retire?

If you&rsquo;re younger than 72 years old, you have flexibility on how much and from which accounts you take withdrawals. Conventional wisdom is that you start with your taxable accounts, then switch to your tax-deferred retirement accounts, and leave your tax-free accounts for last. There are other strategies, but you should always discuss them with your tax professional and wealth management team to ensure they&rsquo;re properly executed.

Taxes are one of life’s few certainties. The question is, how do you minimize their impact? We believe it’s done by making the reduction of your tax liabilities an integral part of your wealth plan, not an afterthought.

Breadth, depth and an eye on the future

Lowering your taxable investment income and maximizing tax-deferred savings. These two objectives tend to drive most tax planning strategies. At BMO, we’re committed to applying this through every life stage and every aspect of your wealth plan. Here’s how we do it.

Go beyond tax season

There’s a tax implication behind every investment and transaction. That’s why we take a year-round approach to our tax planning strategies.

Expand the conversation

We build relationships and connect with anyone in your family with an important perspective to share—from the heads of household to the heirs.

Build toward the future

Understanding the effect of taxes on your wealth right now is important. But knowing its impact on your future is critical. We’re focused on both.

What to expect

Turning liabilities into possibilities

We’ll work collaboratively with external advisors, including your tax attorney and accountant, seeking to ensure every aspect of your tax-planning strategy is smart and sound:

Tax liability and reduced inherited tax strategies
Future income planning, including potential deductions and tax mitigations
Strategies to take advantage of current tax laws and codes

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FAQs

Am I paying too much in taxes? How can I lower my tax liability?

Our wealth advisors have deep experience in reviewing a client’s current situation, working with a tax professional and then offering recommendations to help reduce tax liabilities.

What are my options for lowering my estate taxes?

Your estate tax options will vary based on your unique circumstances. We can work with your tax professionals to develop and implement a strategy for reducing estate tax liabilities for you and your beneficiaries.

Should I consider moving to another state that may be more advantageous from a tax point of view?

Our wealth advisors are familiar with the benefits of changing domicile states and can recommend alternatives based on your current situation.

Which account should I take withdrawals from to fund my lifestyle after I retire?

If you’re younger than 72 years old, you have flexibility on how much and from which accounts you take withdrawals. Conventional wisdom is that you start with your taxable accounts, then switch to your tax-deferred retirement accounts, and leave your tax-free accounts for last. There are other strategies, but you should always discuss them with your tax professional and wealth management team to ensure they’re properly executed.

When the tax law changed in 2018, I no longer received a tax deduction for my charitable contributions. Is there anything I can do?

Under current tax law, the standard deduction was increased to $24,000 for married couples. Taxpayers who don’t itemize their deductions are limited to a $300 above-the-line deduction to receive a tax benefit (effective in tax years after 2019). Taxpayers who donate more than $300 but not enough to exceed the standard deduction need to consider alternative gifting strategies. A BMO wealth advisor can discuss options.

Can I give appreciated stock (e.g. part of my business interests) to a donor advised fund to help utilize the charitable deduction and offset income from the sale of my business?

There is a significant benefit in gifting stock in-kind rather than selling it and contributing the net proceeds. You avoid paying any tax due on the sale of the stock and if the charity sells the stock there is no tax since the charity is a tax-exempt entity. If the donation helps you itemize and you’re trying to offset windfall gains in the same year (e.g. the sale of your business), then all the better. Make sure you keep an eye on the current-year deduction rule. Right now, appreciated securities are limited to 30% of your adjusted gross income, but the excess can be carried forward to a future year. For more information, contact us.

In light of the SECURE Act, what are my options in terms of naming beneficiaries of my IRA/retirement accounts since I used those accounts for legacy planning?

If you named a trust as the beneficiary of your IRA, and thought the “stretch” provisions would enable your heirs to take required minimum distributions (RMDs) based on their life expectancy, those rules are no longer in effect. IRAs must now generally be depleted within 10 years by a designated beneficiary. You can apply other measures to provide for your heirs, but don’t make decisions like this on your own. Consult a financial advisor who can guide you through your options.