The #1 Tax Goal: Pay at the Lowest Rate

By LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management AdvisorSM, Accredited Investment Fiduciary® , Published Author |

You don’t need to be a Wealth Management Advisor or a Certified Public Accountant (CPA) to make sense of the #1 tax goal, paying at the lowest rate.  But sometimes, you do need proficient thinking and a plan to fulfill the objective.   Here are a few examples of conversations I’ve had recently.


A gentleman who is still working, receiving a respectable salary was considering taking his pension from a former job early at an accelerated rate rather than delaying the pension income.  His rationale was that he wanted to get the money out of the pension as soon as he could, take control of the money and invest it himself.  He further understood that when both he and his wife pass away, there is not a beneficiary option for his children.  This all makes sense, but from a tax perspective, adding pension income on top of his salary would mean he would pay taxes in a higher bracket for income he does not currently need, versus waiting to begin the pension income until after he retires and is no longer collecting his salary.  Fortunately, his pension offers a “lump sum distribution” option where he can opt for a non-taxable direct rollover into an IRA, solving for his desire to get the money out of the pension as well as have his children as contingent beneficiaries, and then take withdrawals from the IRA later, at a planned lower tax rate.


Contributions to a Roth IRA or Roth 401(k) or conversions from IRAs to Roth IRAs are a regular topic of conversation in our office.  Using software to model and forecast planned income, we can determine which is advantageous, when, and to what extent.  Often, clients are surprised when we show them that contributing to a Roth earlier may be less tax-advantageous than doing a conversion later.  When we have clients who earn a high amount of income, taking advantage of pre-tax contributions can lower their current year tax burden.  Then, when their incomes are lower, we can plan for a specific dollar amount in given years to be converted to Roth, to take advantage of lower tax brackets.


We have clients who have had stock or other investments grow significantly in value.  At times, the owners of the accounts want to use the money or know they should diversify their investments, but they procrastinate in doing so because they can not stomach the capital gains tax bill that would come due.  In these instances, we can use capital gains budgeting and tax-loss harvesting as a plan to reduce their overall tax burden.


Financial planning is often complicated.  Taxes can take a back seat to optimizing other goals, however it is advantageous to keep in mind the #1 tax goal:  pay the lowest rate. 


LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or , or


Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC. 


Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.


This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.


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