by | Feb 23, 2024 | Personal Finance | 0 comments

We see plenty of confusion and questions at this time of year regarding tax forms.  And it’s no wonder!  Not only do you get an influx of confounding forms in January and February; you also get increasingly gray interpretations of the new tax laws from Congress and the IRS.  Being aware of new and changing tax laws and their potential impact on your personal tax return is both paramount and difficult. 

I must say that I am not a CPA, and I believe your best way to navigate the tax code is by hiring a professional who is up to date on the latest information.  In saying that, however, I also note that even a great accountant is not always the same as a tax planner.  If you have a complex tax return, you not only want to work with someone who will put the right numbers in the right boxes; you also want to find someone who will interpret those numbers and help you proactively plan to minimize your tax liability for next year.  

We recently returned from an excellent conference on this topic, presented by the outstanding Ed Slott and his team of professionals.  Tax planning is different from tax preparation, and I was glad to learn from one of the best about how to help people think about their tax situation in a broader context and with a long-term view.  

One of the big take-aways was that estate planning is basically tax planning, and it’s not just for people who have a high net worth or complex situations.  Taking time to think about how your financial accounts are set up and how they will pass once you are gone is essential “financial hygiene” for everyone.  

To that end, here are three questions you should be asking yourself about your financial accounts (this includes bank accounts and employee benefits such as life insurance as well as investments): 

  1. “Who are my beneficiaries?”  Many people cannot find their beneficiary forms or may not have gotten around to naming beneficiaries at all.  This can create problems for whoever has to distribute your estate after you are gone.  The kindest thing you can do for your loved ones is to get your documents in order!   

  2. “Am I leaving my beneficiaries a gift that is going to help them, or a tax time bomb that may become an unintended nightmare?”  I wrote an article a few years back about how different types of beneficiaries are handled after the Secure Act was passed.  The changes were significant from a tax-planning standpoint.  You can read my previous article here. 

  3. “Am I taking advantage of the Roth opportunities available to me?”  Simply put, a tax-free gift is possibly the best and most generous gift you can leave for your beneficiaries.  For most people, that means utilizing Roth accounts to the maximum extent possible.  By Roth accounts, I mean Roth IRA, Roth 401(k), Roth 403(b), etc.  Each type has its own eligibility requirements and rules, so if you don’t have access to one type, don’t assume you don’t have access to any Roth type.  

Your answers to these questions will likely lead to more questions, which is an excellent opportunity for an open conversation about this important topic.  In other words, ask your financial planner or CPA and get started.  Yes, it’s a complicated subject.  But that doesn’t mean you should avoid this.  In fact, you should be talking about this because it’s complicated.  The more you know, the more informed your decisions can be.  And those decisions can have repercussions on those you care about.   

As a side note, if you didn’t know already, we recently created a short, friendly series of videos explaining common tax forms and what you need to know about them.  You can find that series on our YouTube channel here.  I hope it is helpful!