Federal and Arizona State tax law is complex, with a diverse variety of deductions and credits that taxpayers of different types can potentially leverage to their benefit. The types of income a person earns, the value of an earner’s assets, and the categories of investments they hold should influence their overarching tax strategy.

The inherent complexity of the system means there is no single best tax strategy. What’s ideal for one high-net-worth individual may be entirely different from the optimal approach for another. It’s not always easy or accurate to make generalizations about tax optimization best practices, but there are some broad strategies high-net-worth individuals often adopt to maximize their tax savings.

Utilizing Tax-Deferred Accounts Where Possible

Although some types of tax-deferred accounts have income limitations, such as Roth IRAs, even high-net-worth individuals have access to a variety of tax-deferred accounts. The use of tax-deferred accounts can be particularly impactful for retirees who earn a higher income during their working years. They may pay a much lower rate in retirement when they begin drawing income from tax-deferred accounts.

Although not everyone will use charitable donations to reduce their taxable income, it is one of the more widely utilized strategies among high-net-worth individuals. The complexity of charitable contribution strategies can vary greatly depending on the taxpayer’s preferences and income. Some investment tools, like donor-advised funds (DAFs), may allow taxpayers to more easily maximize charitable giving for tax purposes.

Professional tax preparation is not reserved solely for high-income individuals and households. Even median earners can potentially benefit from deductions and credits that will reduce their tax liabilities.

Which deductions or credits a high-net-worth individual may be eligible to use will depend on the sources of their income and the types of business expenses they have. The complexity of tax law can make it difficult for the average taxpayer to identify all their potential credits and deductions on their own and use them correctly to avoid running afoul of the IRS. Professional tax preparation assistance provided by accounting professionals experienced with high-net-worth individuals is advisable.

Capital gains tax rates are significantly lower than income tax rates for high-net-worth and high-income individuals and households. There are only three brackets for capital gains rates compared to seven income tax brackets.

The rate for long-term capital gains, which is dependent on the taxpayer’s income, is either 0 percent, 15 percent or 20 percent. Short-term gains are taxed as regular income at the earner’s higher income tax rate.

How long an investor holds on to assets before selling is highly dependent on their financial situation and the performance of the investment, but as a general rule it’s preferable to pay the lower long-term capital gains rate rather than the income tax rate on the proceeds of investments.

Estate planning and the formation of trusts is often central to the tax optimization plans of high-net-worth individuals. There are more than a dozen types of trusts, from grantor retained annuity trusts (GRATs) to bypass trusts that allow couples to maximize federal estate tax exemptions. You don’t need to be extraordinarily wealthy to optimize tax planning by leveraging trusts. Even low- or moderate-income savers can make use of wisely crafted estate planning tools to reduce estate taxes.

High-net-worth individuals can use a variety of trusts and estate planning tools in creative combinations to reduce their taxable income and assets, even during their working years. It’s best to consult with experienced estate planning professionals to develop a dependable plan that will provide long-term protection with the ideal level of control and access for your situation.

Some high-net-worth individuals may benefit from income-shifting strategies, which may entail gifting assets to family members in a lower tax bracket or leveraging family limited partnerships to reduce their taxable income. It’s important income shifting strategies are implemented with the help of experienced accounting professionals who can ensure everything is done within the boundaries of tax laws and regulations.

Professional Assistance Is Key for Optimizing Tax Strategies

Tax law in the United States is extraordinarily complex, which is why high-net-worth individuals often work with experienced tax preparers and financial planners to develop thorough plans. Periodically consulting with your tax preparer and financial planning advisors can help ensure your wealth is consistently optimized and maintains compliance with the latest laws and regulations.  

Our Financial Advisors Excel at Helping High-Net-Worth Households Protect Their Assets

The team at Fullerton Financial Planning take a holistic approach to investment management and 

. Our financial advisors help savers develop comprehensive plans that incorporate 

 to provide long-term financial security and peace of mind. Schedule a free consultation today by calling 

Optimizing Tax Strategies for High-Net-Worth Individuals

Determining a baseline for retirement savings in the United States is difficult due in large part to the nation’s diversity. A host of variables, from age and lifestyle to cost of living and income, can influence what constitutes adequate savings.

The median retirement savings for all Americans was $86,000 according to the Federal Reserve’s 2022 Survey of Consumer Finances. The average balances of retirement savings varied significantly across different age groups, with those under 35 having an average balance of only $49,130 and those 75 and older having an average balance of $462,410.

Retirement savings balances don’t dictate annual tax burden; that is determined by taxable income, which may come from a variety of different sources. Social Security benefits, traditional IRA and 401(k) withdrawals, pension income, capital gains and dividends from investments and other income streams are all taxable, even in retirement.

There is always uncertainty in retirement, even for investors with several hundred thousand dollars saved. Healthy Americans in their 70s could live for two or even three more decades. What might have seemed like a lot of money at the outset of retirement could prove inadequate.

Strategies that minimize a retiree’s tax burden can be valuable in the long run and may help savers keep more of their savings intact.

How Income Affects a Retiree’s Tax Burden

Retirement savings tax strategies can be heavily influenced by a person’s income during their career and the sources of their income in retirement. A tax-efficient strategy for someone making less than the Roth IRA income limit throughout their working years and a tax-efficient approach for an above-average earner may look very different.

For higher-income savers, maximizing traditional 401(k) or IRA contributions can be beneficial, even though withdrawals from the account in retirement will be taxed as normal income.

Some workers might also want to look into establishing a backdoor IRA, which entails creating a traditional IRA with after-tax dollars then converting it to a Roth IRA. Although there can be significant tax advantages in a backdoor IRA, retirement savers should be cautious. Any gains in the traditional IRA are taxable in the year of the transfer or transition to a Roth IRA.

Workers who do qualify for a Roth IRA or Roth 401(k) may want to consider using a Roth IRA from the start, or for as long as they can prior to reaching the AGI limit. Savers early in their work life who believe they will earn a higher income once they retire could experience greater tax savings by taking advantage of tax-free Roth IRA or Roth 401(k) withdrawals in the future.

Higher-income workers who don’t qualify for Roth retirement savings accounts can still strategically invest in assets that generate capital gains rather than regular income. The taxes on long-term capital gains and qualified dividends can be significantly lower than ordinary income tax in retirement.

The same is true for lower-income individuals. Many savers may even qualify for the lower long-term capital gains rate of either zero percent or 15 percent.

For individuals who have a lower tax rate in retirement as well as Roth accounts with tax-free growth and withdrawals, it often makes sense to adopt a staggered withdrawal strategy. This may mean drawing from taxable accounts first, followed by tax-deferred accounts. This approach allows the investments in Roth accounts to grow tax-free for as long as possible.

Higher-income individuals often benefit from discussing their required minimum distribution timing with a tax professional and retirement investment manager. They may also want to consider utilizing qualified charitable contributions directly from their IRAs to further reduce taxable income.

Retirees with high income from different sources may want to pursue capital gains harvesting during lower-income tax years. This involves selling appreciated assets during years when they’re in a lower tax bracket, which locks in the taxable capital gains at the lower rate, then repurchasing them.

Savers should discuss their options with a tax preparer to find out if they qualify for tax loss harvesting, tax credits or deductions.

There are many potential tax strategies workers saving for retirement and current retirees may utilize. The strategies that provide the greatest long-term tax advantages depend highly on each person’s or household’s unique situation. If you are interested in receiving personalized analysis from local Phoenix 

, contact Fullerton Financial Planning at (

Tax-Efficient Retirement Planning

The vast majority of income tax filers in the United States, regardless of their age, would prefer to minimize their tax burden. How you can go about maximizing deductions will vary based on your assets, income sources and your annual expenses.

There’s no straightforward, one-size-fits-all approach due to the diversity of financial situations among tax filers. Some Phoenix tax filers can afford large charitable contributions while others might have particularly high medical expenses due to a family illness or injury. Both types of tax filers may want to take advantage of itemized deductions to reduce their taxes, but how they go about it may be different.

Although the approach might vary, there are some high-level factors to keep in mind when you begin looking for ways to maximize tax deductions.

If your income fluctuates from year to year, it’s likely a good idea to keep an eye on your tax bracket and be cognizant of how close you may be to reaching a higher or lower marginal tax rate (the rate you’ll pay on your highest dollars of taxable income). Knowing where your income puts you may allow you to strategically plan your income and deductions to potentially decrease your tax rate for the current year or future years.

Have You Maximized Your Retirement Contributions?

Some workers may benefit from maximizing their contributions to pre-tax retirement savings accounts like 401(k)s or traditional IRAs. Contributions to these types of accounts reduce your taxable income, regardless of whether you end up itemizing deductions.

Although Roth IRAs and 401(k)s are not tax deductible and are funded with after-tax dollars, they do offer tax-free growth of invested funds, as well as the potential for tax-free withdrawals in retirement. Those who meet income eligibility requirements and are taking a long-term view on positioning themselves for a reduced tax burden in retirement may want to investigate these types of investments during their working years.

Consider Maximizing Health Savings Account (HSA) Contributions

While maximizing HSA contributions won’t be the best move for everyone, these tax-deductible accounts are similar to Roth retirement savings accounts in that they offer tax-free growth and tax-free withdrawals for any qualifying medical expenses.

How much you or your family will use HSA funds depends on your health insurance and medical needs. These accounts can be a useful way to minimize your taxable income if you know you’ll need to spend money on healthcare expenses, or you just want to make sure you’re prepared for the unforeseen.

Itemized deductions allow taxpayers to decrease their taxable income, which can potentially allow them to benefit from a lower tax bracket and marginal tax rate. Itemizing deductions is the alternative to the standard deduction, which is a fixed deduction amount that’s based on filing status. Itemized deductions require detailed tracking of eligible expenses throughout the year.

Although there are many potential itemized deductions, some of the more common include:

You might not know whether to take the standard deduction or itemize until closer to the end of the year, which is why it’s likely in your best interest to track any potential deductions throughout the year. Doing so may make it easier to decide when you start preparing your tax return. Keep in mind that itemizing requires good recordkeeping and organization, as you may need to substantiate your claims to the IRS.

While tax deductions decrease the amount of income subjected to taxes, tax credits reduce the amount of taxes you owe after they have been calculated. They provide a dollar-for-dollar reduction in tax liability in either a refundable or non-refundable form.

A refundable tax credit means that if what you owe goes into the negative, you can get the difference refunded, while non-refundable credits can only reduce your tax liability to zero.

Your preferred capital gains tax strategy may vary depending on your income sources, age and financial situation. Every taxpayer is assigned a short-term and long-term capital gains rate based on their income tax bracket. The short-term rate is the higher rate and is applied to any gains on assets sold less than a year after purchase.

Many taxpayers choose to hold onto investments for at least a year before selling to avoid the higher rate, but how you approach capital gains or investment loss harvesting may vary depending on your circumstances.

Get Guidance on Financial Planning, Investment Management and Retirement Planning in Phoenix

If you’re interested in finding ways to minimize your taxes or position yourself for a reduced tax bill in retirement, the financial advisors at Fullerton Financial Planning may be able to help. We make 

 and are ready to answer your questions and provide solutions. Call us at 

How to Reduce My Taxes and Maximize My Tax Deductions

While some aspects of life become simpler in retirement, taxes are not necessarily one of them. Determining whether you owe income tax on your Social Security Benefits and the amount you owe can require a bit of extra work. It’s one of the reasons why so many retirees turn to income tax preparers with experience assisting SS beneficiaries.

Before performing the calculations, tax filers need to ascertain their:

You can use that information to ascertain your “combined income.” Single filers with a combined income between $25,000 and $34,000 are required to pay income taxes on 50 percent of their Social Security benefits. Filers with combined income over $34,000 owe taxes on up to 85 percent of their Social Security benefits. Those with a combined income of less than $25,000 don’t owe income tax on any of their Social Security Benefits.

The income limits are slightly higher for married filing jointly beneficiaries. Couples with a combined income between $32,000 and $44,000 owe tax on 50 percent of their benefit while those with a combined income over $44,000 will need to pay taxes on up to 85 percent of their benefits. SS benefits typically are not taxable for couples with a combined income of less than $32,000.

Combined Income = Adjusted Gross Income + Non-Taxable Interest + Half of Social Security Benefits

To get your adjustable gross income, you need to add up all your income and subtract eligible adjustment deductions. Income categories may include:

Many adjustments are most commonly available to people who are still working, such as contributions to traditional IRAs, student loan interest or some of your self-employment taxes or health insurance. It may be in your best interest to consult with a tax planner for clarification if you’re not sure whether certain expenses qualify for inclusion in your adjusted gross income calculation.

Although non-taxable interest is not itself taxed, how much of it you earn does influence the combined income equation and, as a result, does have tax implications. 

Some examples of non-taxable interest might include:

If you have questions about the taxability of any of your interest earning holdings, or whether that interest should be calculated to reach your combined income, you should consult with an experienced accountant or tax preparer. 

Depending on your income streams, retirement savings and benefits, calculating your combined income may be complicated. Gathering all the relevant documents in advance, including your SSA-1099, 1099 forms for interest and dividends and any other income records, can make the process easier. A professional may also be able to identify relevant deductions that could potentially reduce your adjustable gross income.

It may be helpful to keep this calculation in mind when deciding whether to work in retirement or how to structure your income after you begin collecting your Social Security benefits. Your earnings through part-time jobs or freelancing could potentially increase your tax burden due to a higher combined income calculation.

Timing of income and distributions from retirement accounts as well as tax-deferred accounts like Roth IRAs may allow you to better modulate your combined income and have a positive influence on your Social Security benefits taxes.

Get Help With Your Social Security or Medicare Benefits Planning in Phoenix

? Are you interested in learning more about tax-advantaged Social Security Benefits or 

? The financial advisors at Fullerton Financial Planning are here to provide clarity and answers. 

Calculating Taxes on Social Security Benefits

It’s not exactly accurate to say Social Security is taxed twice, but it can certainly feel that way. This is often attributable to people seeing Social Security being withheld during their entire working life, then finding out in retirement that those earned Social Security benefits are themselves being taxed as income.

Social Security is essentially a mandatory retirement savings program funded by the Federal Insurance Contribution Act (FICA) taxes you and your employer pay each year. Conceptually, the government views it as a savings account for your retirement rather than a traditional tax on income to fund the government. In that respect, the benefit payment you receive from that “savings account” is only taxed as income when you finally receive it in retirement.

The program has been running at a deficit in recent years, meaning more is paid out in SS benefits than is taken in via the Social Security portion of FICA taxes paid by current workers. In their 

, the SSA says the program was paying monthly benefits to 66 million people in total. Approximately 181 million workers paid FICA taxes that year.

They estimated that more than 40 percent of SS beneficiaries paid income tax on their benefits, and those taxes go into the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds as well as the Medicare Hospital Insurance Trust Fund.

What Does the Social Security Trust Fund Depletion Mean?

Depletion of the Social Security trust fund, which is projected to occur in 2034, doesn’t mean the fund will be entirely empty. It simply means that, in that year, the fund’s income is projected to only cover approximately 80 percent of scheduled benefits. Unless legislation is passed to correct the issue in some way, SS beneficiaries may experience a roughly 20 percent reduction in their benefit payments once depletion occurs.

Potential Solutions to Avert Depletion or a Reduction in Benefits

There are a variety of potential legislative solutions that have been floated to avert the depletion cliff. One potential solution is to increase the FICA tax rate (

) or lift the cap on taxable wages. The portion of this tax that goes to funding Social Security is 12.4 percent – 6.2 percent paid by the employer and 6.2 percent paid by the employee.

, if passed right away, would make up for the projected shortfall. If the tax increase was put off until the shortfall arrives in 2034, the SS part of FICA would need to increase to an estimated 16.55 percent to account for the 20 percent shortfall.

The exact estimated figures change annually due to the variety of factors that play into benefit calculations, from inflation adjustments to the number of workers paying into the funds and the number of retirees claiming benefits.

An alternative solution may be to strategically reduce benefits. Some potential ideas that have been suggested include:

Many experts advocate for a combined approach to minimize the impact on taxpayers and beneficiaries. That could entail slightly increasing the Social Security part of FICA taxes, raising the retirement age (especially for younger workers) and taking steps to tweak the benefit formula, especially for high earners.

There Are No Easy Solutions – But Social Security Isn’t Going Away

Social Security is a hot-button issue. Older people are the 

 in the nation, and politicians on both sides of the aisle go to great lengths to avoid alienating this vital demographic.

The doomsaying and inflammatory rhetoric can sometimes make the situation sound more dire than it is. While a 20 percent reduction in benefits would be a serious problem for many retirees on a fixed budget, it’s a far cry from a complete loss of Social Security.

Even policymakers who advocate for changes typically go to great lengths to reassure current and near-future retirees that they won’t lose their benefits or have their full retirement age increased. In fact, the last time the full retirement age was increased was more than 

, when FRA was increased from 65 to 67 based on year of birth.

Current retirees in Phoenix, as well as those who are planning for future retirement, who are concerned about their future benefits may find speaking to an experienced 

 has extensive experience helping savers plan for the future and maximize their benefits in retirement. Call us to speak with a financial advisor today. 

Why Is Social Security Taxed Twice?

Yes, Social Security is taxed as income for retirees – if the retiree’s combined income meets the minimum requirements. Combined income is your adjusted gross income (AGI) and nontaxable interest combined with half of your Social Security benefits.

 or joint filers with a combined income of $32,000 to $44,000 will have to pay income tax on up to 50 percent of their benefits. Single filers with a combined income over $34,000 or joint filers with a combined income over $44,000 may need to pay taxes on up to 85 percent of their benefits.

 through the SSA to make the process easier. Social Security beneficiaries should receive a copy of their SSA-1099 every January, but you can also request a copy through the 

Social Security Administration’s website

Marginal tax rates can hit retirees particularly hard as they reach the taxable income thresholds. If you’re on the edge of either the 50 percent or 85 percent threshold, it may be in your best interest to speak with a financial advisor or professional tax preparer for guidance.

Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars, meaning they aren’t taxed as income when they’re withdrawn and not included in your combined income calculation. Whether it makes sense to convert a traditional IRA into a Roth IRA in retirement and take the one-time tax hit depends on the unique circumstances of your income and financial situation. It’s likely in your best interest to discuss this and all your other options with experienced 

Should You Continue Working After Beginning to Receive Your Social Security Benefits?

This can be a tough question for many single filers and couples, especially given how combined income is calculated. An important factor to consider is when you begin taking benefits. Doing so before you reach full retirement age can have consequences, but it still might be the preferred choice for some workers and retirees.

The Social Security Administration considers you retired once you begin receiving your SS benefits. People who begin collecting their benefits prior to reaching full retirement age can potentially receive a reduced benefit amount if their annual earnings exceed the limit set by the SSA.

The reduced benefit amount varies depending on how early you begin taking SS. The minimum age to start receiving benefits is 62. You can find the full breakdown of the benefit 

If you begin collecting your benefits prior to reaching full retirement age (FRA), the SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2024, the limit is $22,320.

You can find a detailed chart of full retirement age based on birth year on 

the Social Security Administration’s website

, but the current breakdown as of 2024 is:

The deduction for wage earners is lower, but still present, during the year you reach full retirement age. The SSA will deduct $1 from your benefits for every $3 of income you earn over the 2024 limit of $59,520, but only for the months prior to reaching FRA.

Once you do reach full retirement age, your earnings will no longer reduce your benefits.

Are You Eligible for Social Security Benefits in Phoenix?

Social Security benefit strategies can be complex, especially given the unique rules regarding when you can begin taking benefits, the ways in which other earnings may reduce your pre-FRA benefits and the impact combined income can have on your marginal tax rate.

Is Social Security Considered Retirement Income for Tax Purposes?

How the Tax Brackets Different From the 2022 – 2023 Tax Year?

Post-pandemic inflation had more of an impact on tax policy than some people may realize. The IRS did make some adjustments to avoid bracket creep, or the phenomenon where people are inadvertently pushed into a higher bracket because their income was inflation-adjusted. In practical terms, this means preventing people from paying cost-of-living adjustments to the government. 

For example, the 22 percent tax rate for the 2022 – 2023 year for a single filer was $89,075. Increasing the maximum for the 22 percent bracket to $95,375 helps ensure people near the edge aren’t punished for small bumps in pay, like the raises they might receive to compensate for inflation.

There will be a similar adjustment to the tax rates workers and retirees will need to pay in 2025. For example, the upward income limit for a single filer in the 22 percent bracket 

Ways to Reduce Your Taxable Income for Future Tax Years

Although there are many ways Phoenix tax filers can potentially reduce their taxable income, discovering, understanding and implementing the necessary strategies to accomplish your goals isn’t always straightforward or easy. It’s especially important that tax filers pursue these strategies according to state and federal tax law to avoid audits or penalties. If you have questions or concerns, it’s likely in your best interest to discuss tax planning with an experienced financial advisor or tax preparer.

Maximizing Pre-Tax Retirement Contributions 

Pre-tax retirement account contributions to 401(k)s, IRAs or other qualifying retirement accounts reduce your taxable income. When you do eventually take those dollars as taxable income during retirement, you may be in a lower tax bracket, meaning those dollars could potentially be taxed at a lower rate than what they would be taxed at if you were to pay them today.

Put Money Into a Health Savings Account (HSA)

HSAs are unique in that they offer three different tax benefits:

If you have an HSA account, it may be beneficial to maximize your contributions (capped at $4,150 for self-coverage and $8,300 for family coverage) if you can afford to do so and it makes sense for your financial situation.

Some workers may have the opportunity to defer certain types of compensation, like bonuses, to a later year. This can be helpful for people who experience income fluctuation from year to year.

Converting a Traditional IRA to a Roth IRA

IRA conversions can be a little complex but may be a good option for young or middle-aged workers who suspect they will end up being in a higher tax bracket in retirement. Converting from a pre-tax to post-tax account means the dollars currently in the IRA will be taxed during the conversion, but the money remaining in the account and new contributions can experience tax-free growth and withdrawals moving forward.

If you have the option to do so, putting high-yield investments into tax-deferred accounts can help decrease your annual tax burden.

Charitable Contributions and Distributions

There are a number of ways in which charitable giving can have tax benefits. For example, some retirees may be able to use their RMD for a charity, in which case it wouldn’t be taxed as income. Some retirement savers may also be able to bunch charitable contributions in a single tax year through a donor-advised fund.

After-tax annuities can offer some retirement savers a way to enjoy tax-deferred growth beyond what they might earn through traditional retirement savings accounts that are subject to contribution limits. If you’d like to learn more about the ways in which annuities can be used to reduce your tax liability, don’t hesitate to consult with one of our financial advisors.

Find the Right Solutions for Your Financial Future

If you are seeking the most effective way to organize your finances to minimize your tax burden both today and in retirement, consider consulting with an experienced financial advisor at 

. We can explain your options and the potential advantages and disadvantages of each. Schedule an appointment today. 

Tax Brackets for 2023 – 2024

There are a variety of reasons an Arizona taxpayer may receive a higher state or federal income tax refund than they expected:

Whatever the cause, there are a seemingly limitless number of ways taxpayers can spend an unexpectedly large refund. They can put it toward the purchase of a new car, spend it on home renovations, buy new furniture or appliances, fund a vacation or put it into savings, to name just a handful of potential options.

There isn’t really a wrong way to spend a tax refund – the perceived value of any purchase is in the eye of the beholder. However, some purchases or investments might have a greater long-term impact on your financial stability and well-being than others.

While it’s rare for a refund to be large enough to cover the cost of a real estate purchase, like a new home or investment property, it could be put toward one of those purchases. Alternatively, you could invest that money into improving your current home or other properties you own.

Although few property improvement investments result in a reliable 100 percent ROI, the added benefits of home enhancements might still justify the investment.

Spending money on a kitchen or bathroom remodel could make living in your home more enjoyable, despite the full cost of the investment not being reflected in increased home valuation. You might know you need to make a large investment in routine but expensive home maintenance tasks, like HVAC replacement or roof replacement. A large refund might provide a rare opportunity where you have the cash on hand to cover a significant percentage of one of these expenses.

How you save for retirement may influence the way you can invest your tax refund. People who rely primarily or solely on an employee-sponsored 401(k) won’t be able to invest their tax refund directly into that account, but there are other options.

If you don’t already have a separate self-directed traditional or Roth IRA, you could open one and put your tax refund into it. Although there are annual contribution limits on IRAs, paying into one consistently over decades and managing the funds wisely may greatly enhance the resources you have available when you retire.

Growing Money Without Sacrificing Liquidity

There are a number of common banking tools designed to encourage investment and savings. Although the annual percentage yield (APY) of most savings or checking accounts isn’t particularly high compared to returns that could potentially be earned through riskier investments, these types of financial savings accounts are very safe.

There are also some investment strategies, like a CD ladder, that allow banking customers to utilize higher yield savings tools without sacrificing all their liquidity. A CD ladder involves opening multiple CDs at different maturity dates so you predictably know when you’ll have access to more funds should the need arise. If a CD matures and you don’t need the cash, you can invest it into a longer-term CD to create a new “rung” in the ladder.

Debts with high interest rates can make retirement more difficult for many Arizonans. Certain types of debt, like credit card debt, can be particularly difficult to overcome. Receiving an unexpected refund might offer the ideal opportunity to avoid future interest payments by paying down your debts.

On amortized debts, like auto loans or home loans, you can typically apply extra payments to the principal, reducing the total interest you’ll owe over the remaining life of the loan. Credit card debt is calculated based on the average daily balance on a monthly basis, but putting money toward revolving lines of credit will still decrease the amount you owe and reduce future interest accrual.

Do You Want to Optimize the Positive Impact of Your Refund?

Phoenix tax filers who want to ensure they’re maximizing the long-term benefits of their tax refund may want to discuss their options with the financial advisors at Fullerton Financial Planning. Our 

 professionals can recommend options or help you establish a plan to reach your financial goals. 

What Should I Do With an Unexpected Refund From the IRS?

Universal advice about maximizing tax savings in retirement is hard to come by because every retirement saver and retiree’s situation is different.

For example, does it make sense to delay Social Security benefits for you or your spouse until 70, or is the upside of taking early payments a net benefit for one or both of you?

The answer may be completely different depending on your financial situation, life expectancy, ability to work and overall retirement goals, which is why generalized guidance should always be taken with a healthy dose of skepticism.

Consulting with a retirement planner, financial advisor or tax expert before you make any decision that will impact your retirement income, especially decisions that have significant tax implications, is likely in your best interest.

However, there are a number of common recommendations you may frequently hear or read when doing research on tax savings in retirement:

Consult with a tax professional or retirement planner.

Most retirees, including those well-versed in their retirement investments and finances, aren’t always fully versed in all the potential ways they could be reducing their tax burden in retirement. Having your plan 

 is one of the most reliable ways to ensure your retirement income and taxes are fully optimized for your unique situation.

speak with one of our retirement planners

 Ways to Maximize Your Tax Savings When Approaching and In Retirement 

Yes, gambling winnings are considered taxable income. This applies to all types of gambling winnings, including sports betting, casino gambling, betting on horse races, the lottery and even raffles. If your winnings exceed certain thresholds, the sports betting app, parlor or casino through which you’re gambling should provide you with a Form W2-G and report your winnings to the IRS.

Even if your winnings don’t exceed the relevant threshold, you still technically owe 24 percent of your winnings to the federal government and the appropriate percentage to Arizona. However, you’ll only be given the 

 if your winnings exceed those minimum amounts.

All other gambling proceeds, including gambling income below those thresholds, should technically be reported as other income on a 

The convenient thing about the W2-G is the sportsbook or casino should withhold federal income tax from your winnings. If you’re just filing a Form 1040, you could be expected to make 

Federal and Arizona State Sports Betting and Gambling Winning Taxes

The IRS taxes all gambling winnings at a flat 24 percent rate, but Arizona taxes gambling winnings based on your overall income. The rates are:

Taxes also apply to non-cash winnings from gambling, including things like trips or vehicles. You’ll be expected to report the fair cash value and pay the appropriate percentage to the IRS and Arizona.

 your losses if you itemize your deductions instead of taking the standard deduction. However, your gambling loss deduction shouldn’t exceed your winnings. For example, if you reported $6,000 of gambling income and $8,000 of losses, you’d only be able to deduct $6,000. Conversely, if you reported $12,000 of gambling income and lost $8,000, you could deduct all your losses and only pay tax on the remaining $4,000. Losses in excess of your winnings can’t be carried over to future tax years.

The IRS isn’t known for being overly trusting on claimed deductions. You should be prepared to provide records to back up your gambling loss deduction, including:

Lottery taxes can get a bit more complicated. The Arizona lottery is legally required to withhold 

24 percent for federal taxes and 4.8 percent

 for state taxes. If a group wins the lottery in Arizona, the tax burden is shared equally among them. Arizona is also one of only two states (the other being Maryland) that levies state taxes on out-of-state winners of multi-state lotteries, like Mega Millions and Powerball.  

Is Gambling and Sports Betting an Effective Way to Save for Retirement?

Although a lot of Arizonans enjoy gambling more than saving for retirement, sports betting is not a feasible alternative to traditional 

 managed and administered by the fiduciaries at Fullerton Financial Planning may represent an ideal solution for Arizonans who enjoy trips to the casino or sports betting.

A well-funded nest egg allows retirees to enjoy their post-work life to the fullest. Many retirees can budget for trips to the casino and some responsible sports betting.

If you’d like to learn how Fullerton Financial Planning can make your retirement dreams a reality, call (623) 974-0300 to 

 Sports Betting Is Now Legal in Arizona. Do You Have to Pay Taxes on Gambling Winnings? 

A 401(k) is a retirement savings plan facilitated by an employer and managed by a third-party financial institution. Employees choose what percentage of their income they want their employer to contribute on their behalf. The money is deducted from the employee’s paycheck just like tax withholding. 

This method of retirement savings has helped millions of American workers prepare for retirement. It is far easier to save when you don’t have to make a conscious effort to do it on a regular basis. This set-it-and-forget-it approach to retirement savings (and investing) frequently leads to better outcomes in the long run. 

What Is a Tax-Advantaged Retirement Plan? 

Many retirement accounts offer some kind of tax advantage, including 401(k)s. Workers who use traditional 401(k) plans are making pre-tax contributions. That means the percentage of your income that’s being deposited into your 401(k) doesn’t have any taxes removed from it. At the end of the year, you don’t have to pay taxes on your 401(k) contributions, even though technically all those contributions come from your income. 

Everyone eventually does have to pay tax on their 401(k) disbursements (distributions) and withdrawals, but those aren’t intended to start until you’re 59 ½ at the earliest. Technically, you can withdraw money from your 401(k) whenever you like, but there is a steep IRS penalty on top of normal income taxes.

Although there are exceptions that will exempt you from early withdrawal penalties, they won’t exempt early withdrawals from income taxes. 

Although there are self-directed 401(k)s that can be used like any other brokerage account or IRA, most retirement savers who use 401(k)s are most likely to be given a handful of potential investment choices. 

Before making decisions regarding 401(k) investment picks, it’s important to understand one’s own risk tolerance. Some investment options carry significantly higher risk but also more growth potential. Others are quite low risk but will also grow at a slower pace than the riskier investment options. 

As a rule of thumb, most young retirement investors start out with high-risk investment strategies and gravitate to lower-risk options the closer they get to retirement. Protecting the value of your 401(k) is often more important than growth by the time you reach retirement. 

Most 401(k)s allow you to invest in specific mutual funds. These funds often include an S&P 500 fund, a large-cap fund, a mid-cap fund, a small-cap fund, international investment funds and funds specifically intended to be large-growth and high-risk as well as low-growth and low-risk, among others. 

Many 401(k) providers also offer more hands-off investment options where you simply choose a preferred 

, and the company manages the rest. For example, you may be able to set your retirement age and adjustments will be made to your 401(k) portfolio without the need for you to ever intervene. These options automatically alter your risk exposure and grow your money without you ever needing to rebalance your fund allocations. 

How you manage your 401(k) is a personal choice. Some people who don’t pay much attention to the market or investments may prefer a more turnkey approach. Others may want to micromanage their options and adjust their funds frequently. 

Many companies offer 401(k) matching as a hiring incentive and employee benefit. These matching funds are frequently in the three to six percent range. What that essentially means is an employer will match an employee’s contributions up to that percentage of their salary. 

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