Now 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.