Advance Wealth Planning Tips for Tax Preferred Saving Strategies

The federal government has long provided incentives for families to save, based on three different types of tax preferences; deferral, deductibility, and tax-free distributions. For wealthier households, however, a more advanced planning strategy is required. The appropriate mix of tax preferenced vehicles should include a conversation with your estate planning and asset protection planning attorney to generate a hierarchy.

The right approach considers the preferenced accounts first and after those contribution limitations have been met, this will then spill additional savings over to the following tier. When this is used as part of a holistic planning strategy, the hierarchical model helps those people with significant assets and high levels of income to minimize their tax liabilities, while also maximizing growth of the savings. Tax preferenced retirement accounts come in two different forms; traditional accounts and Roth style accounts.

Roth style accounts are not deductible when contributions are made but are tax free when distributed. Whereas, a traditional account gives a tax deduction for contributions, but the distributions are ultimately taxed. These retirement accounts are, in some sense, double tax preferenced since they get tax-deferred status on assets inside the account in addition to tax free distribution treatment at the end or a deduction up front.