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Taxes, Your Accountant, and Your CPA

Ben Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.” With tax day right around the corner on April 15, there are key pieces to your tax puzzle that you won’t want to miss! Keep these tips in mind as you prepare your taxes this month.

First, many people don’t know they can file a 1040X, a corrected tax return for a return filed within the last five years. Filling out a 1040X is beneficial because it can give the IRS a more realistic picture of your finances in any of the past five years. In some cases, this can save you money — especially if you overestimated your taxes the previous year.

Second, having your certified public accountant, or CPA, work together with your financial advisor is highly recommended because it can greatly influence your retirement finances. If you don’t have your financial advisor work with your CPA, you may be leaving money on the table. When you have your investments reviewed by your CPA and your advisor, you might find savings you’d otherwise miss.

Let’s say you have a large IRA and you don’t need that money right away. Time goes on, and your money grows and grows and grows. At retirement age, you pull out the minimum, but once you reach your 80s and 90s, you’re having to take out larger sums of money. Of course, when you pull out greater sums of money, you’ll have to pay more taxes.

However, there’s a way to minimize this. If you have your CPA and financial advisor help you with your taxes, they can advise you to transfer your money into a Roth IRA, so you can have lower taxes when you use your money in retirement. Once you reach 70.5 years old, you must take a distribution out of every retirement account in your name — whether that’s a 401(k), IRA, etc.

Here’s where it gets tricky, though: Most financial advisors will tell you that you don’t have to take equal distributions out of every account. You could pull some money from your 401K and leave your IRA untouched. However, this isn’t the case. According to the IRS, you must take equal distributions.

The best way to avoid more taxes in this situation is to make sure that all of your accounts have been converted to an IRA prior to retirement. That way you won’t have a tax penalty hiding in the bushes. Financial advisors will tell you that if you take $50,000 out of your IRA in retirement, you will satisfy the tax requirement and can leave your other $50,000 in your 401(k) untouched. But according to the IRS, you actually need to take your money out of both accounts to avoid the penalty.

When it comes to taxes and your retirement, having your accountant work with your financial advisor during tax time is key to ensuring that you aren’t paying extra taxes down the road. If you are unsure about filing your taxes, come into Mattson Financial Services! This month, we are offering complimentary tax filings and would love to help answer any tax questions you may have! Death and taxes may be givens in life, but the amount of taxes you pay in retirement is not.

– Gary Mattson


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