5 Tax-Efficient Strategies to Include in a Holistic Financial Plan


(State Point) As consumers focus on filing taxes and spending returns, a new study reveals a need for increased awareness around tax-efficient financial strategies. Lincoln Financial Group’s Consumer Sentiment Tracker reports that only 2% of Americans can correctly identify financial solutions with tax advantages, despite one in three saying they prioritize investments that would help them pay less in taxes either now or in the future.

“Lincoln’s research shows consumers are under-educated about tax strategy and tax-efficient investments, revealing a disconnect between aspirations and actions,” said David Berkowitz, president, Lincoln Financial Network, the wealth management arm of Lincoln Financial Group, which provides advice and guidance through its network of independent financial professionals. “Consulting a financial professional and learning more about products and solutions can grow one’s confidence in their financial decisions.”

While not intended to be legal or tax advice, Lincoln Financial Group recommends considering the following five tax-efficient strategies as part of a holistic financial plan:

1. Contribute to a workplace retirement account. Pretax contributions to an employer-sponsored retirement savings plan will reduce total taxable income and allow savings to grow tax deferred. A good rule of thumb is to save at least 10% to 15% of your pay, but if that feels out of reach, start wherever possible and increase contributions a little each year to see big changes in total savings over time. Remember to save up to the employer match, if one is offered.

2. Explore the value of lifetime income. At a time when people are living longer and face greater risks to their savings, an annuity can provide protected guaranteed monthly income that can last a lifetime. Taxes on the gains aren’t paid until the money is withdrawn, so interest can be earned on the money that would have otherwise been paid in taxes. Being in a lower tax bracket during retirement means potentially paying less in taxes overall on the same amount of money. A financial professional can help determine which type of annuity might best fit your specific needs.

3. Prepare for unexpected long-term care costs. The greatest changes to income and lifestyle may result from an unexpected long-term health care event. Different solutions can help provide a cushion, and many of these benefits are income tax-free. Understanding the various policies is the first step in helping ensure you’ll receive needed care without passing a financial burden on to family or loved ones.

4. Diversify a portfolio with life insurance. Adding cash value life insurance to a larger financial plan can help protect savings and provide an income tax-free death benefit for your beneficiaries, as well as tax-deferred growth opportunities. It can also offer advantages that help meet goals at every stage of life, including funding a child’s education costs; strengthening retirement savings; creating additional cash flow; and protecting wealth for future generations. Keep in mind that if loans or withdrawals are taken from the policy, it will reduce the value of the death benefit and other payouts, as well as have potential tax consequences.

5. Work with a financial professional. According to Lincoln’s study, just 1 in 5 U.S. adults feels very confident about making financial decisions to minimize exposure to taxes, yet 47% say they are more concerned about the impact of taxes on their retirement savings due to the current market. A financial professional can help tailor a holistic plan to your needs, as well as provide education about various insurance and retirement solutions.

“Ongoing challenges like market volatility, inflation and changing tax laws have the potential to hit wallets hard,” said Berkowitz. “That’s why tax-efficient investing is an important aspect of financial planning that can help you build wealth and achieve your financial goals.”

PHOTO SOURCE: (c) PeopleImages / iStock via Getty Images Plus


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