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Tax Prep Vs Planning – Two Strategies For Tax Savings

As the new year unfolds, it brings not just resolutions and fresh beginnings but also the commencement of a new tax season. The tax season is upon us and tax professionals across the country are spending their wee hours crunching numbers to save you money where they can. While the best tax preparers can sometimes find savings for you, tax planning offers a more comprehensive way to secure longer-term savings, rather than just once-every-couple-years savings. And that’s the difference between tax preparation and tax planning. Blog over. Case closed. Just kidding! Let’s dive into the distinction between these practices and why there’s a place for both of them in your financial routine.

Tax Prep Vs. Tax Planning

Tax prep and tax planning have two central differences: Their purpose and their timing. Tax prep is primarily focused on completing and filing the correct tax forms in order to be federally compliant. This process happens between January 1 and the April due date – the 15th this year. If you’re lucky, a skilled tax preparer will find some ways to minimize the amount you owe Uncle Sam yearly. This reactive strategy does work out some years!

On the other hand, tax planning is an ongoing effort that happens year-round. These tax-saving strategies take into account your long-term financial goals and make more substantial money-moving adjustments to minimize your tax liability to the tune of a small fortune. Its purpose is to create a proactive strategy for savings accomplished in advance of your retirement. 

Tax Planning’s Growing Importance

In today’s financial world, taxes primarily have a significant effect on retirement earnings. The current generations of retirees are the first to fund their retirements from 401Ks and IRAs, as opposed to the pensions of previous generations. Therefore, it’s more important than ever to prioritize tax planning as part of your retirement savings arsenal. Planning before you retire will help you reap the most rewards.

Additionally, federal taxes are currently at a 40-year low. In order to pay off our record-breaking national debt, it’s likely the federal government will raise taxes. So make your adjustments and maximize your savings while the gettin’s good.

Strategies To Maximize Savings and Minimize Tax-Liability

When it comes to actually implementing tax savings strategies, there are a host of factors that contribute to your tax-optimized equation. Things like managing when and how you withdraw from IRAs, 401Ks, and take your social security benefits all have tax consequences. In retirement, as you transition your income, you’ll be taxed on all of those things. A robust retirement withdrawal strategy often relies on diversifying your money across different types of accounts. This applies to things like reserve funds, taxable accounts (traditional brokerage accounts), tax-deferred accounts (401K or Roth IRA), and tax-free accounts (Roth 401K or Roth IRA). Tax planning may involve

consciously paying taxes now in an effort to save on taxes later, such as converting traditional IRAs into Roth IRAs.

Another often-implemented strategy involves reducing your taxes when the time comes to actually make withdrawals from your tax-deferred accounts, like your 401K. Sometimes taking too large of a withdrawal from your account can push you into a higher tax bracket. By planning carefully, you can limit your 401K withdrawals to prevent that push, and then take the remainder of your cash needs from after-tax investments, cash savings, or Roth savings. When you fund big-ticket purchases from a mix of accounts, you can best minimize your tax expenses.

Bottom Line

Both tax preparation and tax planning can save you money at the end of the day. At Secured Retirement, we believe one of the most effective ways to plan for retirement is to implement tax planning. Most folks don’t want to pay the government one dime more in taxes than they have to. They want to enjoy their retirement and their earnings. If that sounds like you, the single, most important key is to take advantage of every tax-saving opportunity available to you.

Let’s find the best strategies for you — and see how much money you could save!

Email us to schedule your free tax analysis today.

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Danielle Christensen


Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!