Tax Advisor

[waverly]

Our finances have gotten so complicated, I am looking for a tax advisor.  Not someone that just prepares the tax return.  We tried the firm that my work uses, and they are fine, but they are very transactional and are not interested in doing anything above and beyond just preparing the return. 

We are looking for someone that we can schedule a separate meeting to review tax strategy maybe.  I don't know exactly how to word it.  But you know like the difference between inheritance tax (if any) and gift tax, and where to put investments based on tax etc.  Like I don't want to put money that doesn't need to be taxed in an investment account that would assume when I withdraw it that it needs to be taxed type thing.  Or how to save money on taxes now that we can't deduct as much as we used to be able to.

What would this person be called?  Where might I find them?  We did ask our financial advisor and he has a name for us but I am not sure if he was suggesting more a preparer or an advisor type since it's been a while that we talked to him about it. 

[awkwardpenguin]

A good CPA should be able to do this - review your entire tax situation and suggest ways to save, and answer specific tax questions. I'd interview a few CPAs and discuss what services they offer.

However, I'm also surprised your financial advisor can't do some of this for you and/or recommend a good person. Taxes are part of the CFP certification, and figure heavily into investment strategy. As someone with a full picture of your financial situation, I'd think your financial advisor could do a lot of this and refer out the parts he doesn't handle.

It's worth noting that very few people run into federal estate and gift taxes these days, because the exemption is $11.58 million in 2020. Some state estate and inheritance taxes have much lower exemptions, so that's worth looking into.

[waverly]

Oh I thought gifts were taxed over 15K. This is why I need someone. I haven't asked the financial advisor about it recently. I haven't seen him since this summer maybe?

Maybe I can ask here? If I have money that is post tax, that I want to put into a retirement account how can I do that if we are not eligible for an IRA Roth? I don't believe my 457b has a Roth option. My Pension might, but it might be overly complicated. I am afraid to put it in a regular IRA because I am afraid it will be taxed if I withdraw it.  I kind of wanted to keep it for retirement, but maybe I should just put it in a Money Market or mutual fun or maybe a ROTH CD? 

DH might have a Roth 401K option, but I would prefer to keep it in my name to try to keep the retirement accounts more even. 

Our tax preparer just said as far as income tax goes we didn't withhold enough.  I adjusted mine and kept telling DH to adjust his to withhold more, but I don't know what he ended up putting on his because I haven't seen that document.   

[farmvillelover]

You can gift anyone up to $15k a year with no issues. If you gift more than that, technically you need to file a gift tax return. This is more a concern for people of very high net worth. A married couple can gift a chlid $30k ($15k from each mom and dad to child), for ex.

What is this money post-tax that you're referencing? Just regular money? If you make too much to qualify for a Roth IRA, you could look into doing a backdoor roth IRA. It's where you make a non-deductible IRA contribution and then convert it to a Roth IRA very soon afterwards. There should be little to no tax recognized on this transaction UNLESS you have other IRA money that is sourced from pre-tax 401ks that were previously rolled over into that IRA.

I wouldn't bother funding a traditional non-deductible IRA unless you'll do a Roth conversion, there's almost no point. At that point, I'd probably just invest in a taxable brokerage account. The reason I'd do the former though is to possibly have less in assets considered for FAFSA purposes if you have college-bound children since they don't count retirement funds as a parental asset that counts against you for financial aid purposes.

[dcn]

Nov 14, 2019 17:20:17 GMT -5 waverly said:

Oh I thought gifts were taxed over 15K. This is why I need someone. I haven't asked the financial advisor about it recently. I haven't seen him since this summer maybe?

Maybe I can ask here? If I have money that is post tax, that I want to put into a retirement account how can I do that if we are not eligible for an IRA Roth? I don't believe my 457b has a Roth option. My Pension might, but it might be overly complicated. I am afraid to put it in a regular IRA because I am afraid it will be taxed if I withdraw it.  I kind of wanted to keep it for retirement, but maybe I should just put it in a Money Market or mutual fun or maybe a ROTH CD? 

DH might have a Roth 401K option, but I would prefer to keep it in my name to try to keep the retirement accounts more even. 

Our tax preparer just said as far as income tax goes we didn't withhold enough.  I adjusted mine and kept telling DH to adjust his to withhold more, but I don't know what he ended up putting on his because I haven't seen that document.   

Your financial advisor should be able to help you decide where to put your money. If he can’t then I’d find a new one.

And yes many cpa’s Can answer your tax questions and advise you.

[ohgillian]

My Personal Advisor at Vanguard does this type of stuff for us. I don't know if that's an option for you.

[waverly]

I can ask our financial advisor I just haven’t yet. He doesn’t handle my pension or 457b, so he typically gives advice on things he does handle which are more 529 and IRA related.

And yes just regular money that I already paid income tax on, so I didn’t know if I put it in an IRA if I would be double taxed. His advice is to max retirement contributions before a backdoor Roth, but I didn’t have a lump sum before.

Also I just didn’t know how my mom was structuring things as an inheritance or as a gift. She has a lawyer so hopefully she does it as an inheritance. I just didnt know if I had to give her any advice on this. Not looking to ask her too many questions and over complicate it for her since she is being very generous, so trying to be low drama and grateful, but I just don’t know if I will be taxed on it or not and point her in processing things to be not taxed.

Sorry I sound clueless because I am!

[sloan]

We set up a trust for multiple reasons including medical, and the estate attorney we met with was very helpful with strategy regarding what should go in (some for tax, some for practical- if you put a car in a trust then it gets insured to the trust and anyone you get in a wreck with will assume you have lots of money, so if you collect classics OK but don’t put daily drivers in there).

[awkwardpenguin]

Nov 15, 2019 13:47:46 GMT -5 waverly said:

And yes just regular money that I already paid income tax on, so I didn’t know if I put it in an IRA if I would be double taxed. His advice is to max retirement contributions before a backdoor Roth, but I didn’t have a lump sum before.

So this is a point of clarification - technically you have not "paid income tax" on your 2019 income, you have only had income tax withheld.

If you use your regular money to put money into a deductible IRA, that amount will be deducted from your taxable income and you won't pay taxes on it in 2019.  If you put it into a non-deductible IRA, you will pay taxes on the contributions in 2019, but you will only pay tax on the gains, not on the original contributions when you withdraw them.  You are not taxed twice.  If you do a backdoor Roth (non-deductible IRA converted to a Roth IRA) you will only be taxed on the contributions, so it is generally a better deal than the non-deductible IRA, but it is subject to the pro-rata rule if you have other traditional IRA assets.

Generally, I'd say you should contribute in the following order:
1. Employer-sponsored plan up to the maximum match
2. Traditional IRA, Regular Roth IRA or backdoor Roth IRA ($6k/year if you are under 50), if they are available based on your income and don't require anything too crazy.
3. 401k or 403b, up to the maximum limits in those plans (457 basically fall under this step as well, with some nuances between governmental and non-governmental plans)
4. 529 plans
5. Regular taxable investment accounts

Most people don't follow this exactly, but they're ordered from most beneficial to least beneficial, tax-wise.

[waverly]

Good point that the IRA is only up to 6k. Not sure if this is a defeatist view but maybe I’ll just use it to pay off debt, and then up my contributions in the 457b.

I realize it shouldn’t be taxed doubly, but how does the IRS know which money is from where? I mean I guess I don’t trust that completely and don’t want to have to go through the effort to prove it which we have had to do before because DH messed up his rollover paperwork once. So I’m cynical.

We do already meet our employer match.

[RockNVoll]

When you make a non-deductible IRA contribution you file Form 8606 when you do your taxes to indicate that tax has already been paid on it.

[mich1]

The CPA who does our taxes also does some of this. Our issue is complicated, as we not only have US accounts but Canadian retirement accounts and pensions. We are going to need to consult with a second person to help us with this.

[waverly]

Nov 16, 2019 13:14:00 GMT -5 RockNVoll said:

When you make a non-deductible IRA contribution you file Form 8606 when you do your taxes to indicate that tax has already been paid on it.

Thanks. It looks like I would have to file the form again when I withdraw the funds as well. I had no idea such a thing existed!