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At this time of year, it’s usually a mad scramble to pull together the tax info to get your return done or at least extended. But how often do you really look at your tax return and see what it’s telling you? I know it’s a relief to get it over with for another year, but it could save you a bunch of money to take the time to do a little detective work.

As your financial life gets more complex, so does your tax return. It’s easy to get lost in all those pages and forget to focus on a few numbers that could affect your financial strategy. Let’s identify key numbers in your tax return. After you identify these key numbers, we can move on to diagnosing issues you may want to further consider.

When I reference “line numbers” in this next section, I’m referring to the 2020 U.S. 1040 Tax Return.

Marginal Tax Bracket

When you look at your Taxable Income (line 15), what bracket does your income fall into? You can use the Tax Cheat Sheet later in this article for the most common tax brackets. Or you may find a reference to it in the documentation your CPA gives you if he or she prepares the return.

Effective Tax Rate

Divide Total Tax (line 24) by Taxable Income (line 15). This is how much tax you pay after taking out deductions. This is what you REALLY pay in tax. Use this when you think about strategy.

Capital Gains Tax Bracket

Take a look at your Taxable Income (line 15) and compare it to the current capital gains brackets (see our Cheat Sheet again). If your income is lower, or has dropped because you retired before age 72, you may be able to make use of the 0% capital gains rate bracket. As with ordinary income tax, capital gains tax brackets are graduated. You “fill up” the lower brackets first and then move into the higher tax brackets. When you sell an investment, you trigger capital gains or losses. You can net long-term and short-term gains and losses if you have them.

Because the capital gains tax is a graduated system, the 0% bracket is not unlimited. When your taxable income gets above a certain threshold, you’ll pay at higher capital gains rates. Just to blow your mind, while you use Taxable Income to calculate your capital gains bracket, you use Modified Adjusted Gross Income to see if you have to pay the Medicare surtax (3.8%) that is tacked on top of your capital gains bracket. Thanks IRS.

Adjusted Gross Income (AGI)

Line 11. Income before deductions. Important when calculating other key financial numbers like how much you can deduct for charity or how much you pay in Medicare premiums.

Distributions from IRAs

Take a look at Lines 4a and 4b. This is the difference between total IRA distributions and taxable IRA distributions. Not all of an IRA distribution may be taxable if you have after-tax contributions. Once you are over age 72 (and for those who turned 70 ½ before 2020), you are required to take out money from IRAs.

Did you make a Qualified Charitable Distribution (QCD) from an IRA if you are over age 70 ½? If so, they are not taxable and will not increase AGI. QCDs are not reported to the IRS or your CPA. You have to tell your CPA so they can make that adjustment to your Required Minimum Distribution (RMD). There are some tricky rules with QCDs if you are still contributing to an IRA while also making QCDs. So, check with your financial advisor or CPA to make sure you do what’s best for your situation.

Interest and Dividends

Especially when working with high net worth or ultra-high net worth clients, I like to ponder lines 2 and 3. Just the interest on very large brokerage accounts can be staggering. Often these assets have low-cost basis, so you can’t just sell them without triggering a large capital gain. But you can “turn off” dividend reinvestment so that you aren’t aggravating the problem of having too much invested in an over-concentrated position.

Or perhaps you are now in a higher tax bracket and need to consider tax-exempt bonds instead of taxable bonds. This may be a clue to think about when planning your portfolio strategy. When you look at Schedule B (where you list your interest and dividend income), if you see lots of line items, perhaps it’s time to try to consolidate and simplify some of those accounts.

Capital Loss Carry Forwards

As a financial advisor, I’m always delighted to find these on Schedule D, line 16 (especially for a NEW client!). Of course, you may be less delighted because if you have a loss here, you lost money on an investment. Still, it’s the silver lining that gives you a free pass to net out future capital gains. If you don’t have any realized gains to net out, you can deduct up to $3,000 a year of capital losses against ordinary income. These loss carry forwards continue indefinitely.

Charitable Carry Forwards

If you look at Schedule A, lines 11 through 14, you’ll see if you have any charitable contributions that will carry forward to a future year. Our current tax law allows you to give up to 60% of AGI to charity in any one year for contributions made in cash. You can take 30% of AGI if you gift marketable securities. You may be limited to 50% of AGI if you do a combination of cash and securities.

For 2020 and 2021, the CARES Act allows you to deduct up to 100% of AGI as long as the contribution is in cash and not to a Donor Advised Fund or family-funded private foundation. You can use a combination of old and new rules to give up to 100% of AGI in a combination of cash and stock (limited to 30% of AGI). Be thoughtful about using the lower brackets to your advantage so you keep taxes lower over multiple years.

Line 13 of Schedule A shows you any charitable gifts that were carried forward from a prior year. If you see “Limited” on Line 14, it means part of your current charitable contributions (combined with prior carry forwards) will be carried forward and can be used in the next five years.

Charitable “Bunching”

If you find that you can no longer take a charitable deduction because your total deductions (Schedule A, line 17) don’t exceed the Standard Deduction ($12,550 for Single, $25,100 for Married Filing Jointly for 2021)*, consider “bunching” deductions. That just means making more contributions in one year and less in future years. You stagger when you give the contributions so you can get over the Standard Deduction, at least in some years, and deduct what you give to charity. Lots of people use Donor Advised Funds to accomplish bunching.

*Higher if over age 65 or blind

Form 8606

Did you make any non-deductible traditional IRA contributions? Lots of higher income taxpayers choose to make a deduction to their traditional IRA to get the tax-deferred compounding over time. When you use dollars that have already been taxed to make your non-deductible IRA contributions, you have tax basis that doesn’t count as income when you pull money out later. This has to be reported to the IRS on Form 8606. If you didn’t tell your CPA you did this, he or she won’t know to file the form. I’ve seen several situations where people had to retroactively amend prior tax returns to add Form 8606.

  • This form is also used when you rollover a 401(k) account where you made after-tax contributions.
  • If you convert any or all of your traditional IRA to a Roth IRA, you’ll also need to include that on Form 8606.
  • If you convert a traditional IRA that was made with mostly non-deductible contributions, you may owe very little in tax. Those original contributions aren’t taxed when you convert, so you’ll only owe tax on any growth on the account.

Using Key Tax Numbers in your Planning

Now that you know what to look for, let’s think about how to use them in your financial planning strategies.

  • Effective tax rate: use this instead of marginal rate in most planning analyses. It’s a truer measure of what you’re actually paying.
  • Bracket Planning: you may want to find ways to fill up the lower brackets by taking income (from a retirement account for example) so that you pay less in tax over a longer time period.
  • Capital loss carry forwards: these can be helpful if you want to reposition your portfolio and you need to take gains.
  • AGI: If you are right near the threshold of paying higher Medicare premiums, keep this number in mind. You can use strategies like making Qualified Charitable Donations from an IRA to keep AGI lower. That would avoid the ordinary income typically generated by a required minimum distribution once you’re past age 72.

Tax bracket planning is the process of analyzing multiple years of tax projections to see if you can save money by spreading out tax impacts over a span of years. A classic example of this is thinking about Roth IRA conversions in the years directly preceding age 72 when you have to start taking required minimum distributions from retirement accounts.

Diagnostic Questions

  • What marginal tax bracket will you be in this year? If you are in the 24% bracket or lower, consider whether a partial Roth RIA conversion may make sense.
  • Will modified adjusted gross income (AGI) be over $200,000 (single) or $250,000 (MFJ)? If so, you’ll have to pay a surtax (3.8%) on top of capital gains rates.
  • If your earned income is over $200,000 (single) or $250,000 (MFJ), you will also hit a .9% Medicare surtax.
  • What capital gains bracket will you be in this year?
  • If you are over age 70 ½, you can make charitable distributions from IRAs up to $100,000 per person per year. When you do that, this distribution is not taxed and will not increase AGI. Do you want to do that?
  • Do you have capital loss carry forwards? Do you want to reposition your taxable accounts and use capital gains from investment sales to net out the carryforward losses?
  • Are your investments in non-retirement (“taxable”) accounts generating more taxable income than you’d like? Can you stop dividend reinvestment? Can you reposition to tax-managed or tax-exempt investments without triggering undue capital gains?
  • Where do you hold different types of investments? Are your income producing investments primarily in your retirement accounts? Can you reposition across investment accounts to be more tax-efficient?
  • Do you want to match a larger charitable donation with a high-income year? If so, setting up a Donor Advised Fund for charitable purposes may help. You get a tax deduction for what you contribute and you can give away the money over a period of years to qualified charities.
  • If you are not over the Standard Deduction, you can “bunch” deductions by giving more in some years (enough to exceed the Standard Deduction) or by contributing to a Donor Advised Fund. Should you do that?
  • Did you have any non-deductible IRA contributions, Roth conversions or 401(k) rollovers with after-tax contributions? If so, don’t forget to file Form 8606 with your tax return.
  • If you rolled over one retirement plan into another, check to see that you are not being taxed on the transaction (assuming you followed the appropriate rules). Lines 4a and 4b.

Tax Cheat Sheets

I like keeping a cheat sheet by my desk for the tax issues that are most likely to come up when working with my clients. Here’s what I need to refer to most often:



Copyright© 2021 Stevens Visionary Strategies LLC. By Sue Stevens This article is part of the Dreams of Wealth series of books. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means without the prior written consent of the owner except as expressly permitted by U.S. copyright law.

The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. 


It’s easy to think of life insurance planning as transactional in nature, and many times simply a commodity of necessity. You need to cover a financial risk, so you purchase life insurance to eliminate or mitigate that risk. That’s the end of the story, right?

Not so fast. Life insurance is a financial product and requires periodic care just like any other asset. Income, family structure, relationships, and health can all change over time. Naturally, your life insurance needs evolve with these life changes. It’s important to regularly review your life insurance plan and consult with a trusted risk management partner to ensure you have the most effective and efficient protection.

What should be reviewed?

There are numerous aspects of a well-maintained life insurance plan that are important to regularly review. The following are a few questions to address when it comes to assessing your life insurance plan.

1. Do you still need life insurance?

You may reach a point in your life when your family no longer has a death benefit need. If that’s the case, life insurance premiums could potentially be put to better use elsewhere in your financial plan. In cases where permanent insurance policies are no longer needed for their death benefit, you can look to repurpose cash value in these policies to meet other needs. For instance, cash value policies can be surrendered and consolidated with existing investments for retirement planning. Alternatively, the cash value can be utilized to fund long-term care planning via 1035 exchange into a hybrid life/long-term care insurance policy. Finally, a life settlement may be an option if selling the life insurance policy allows you to receive more for it than your policy’s cash surrender value.

2. Do you have the type of life insurance that best suits your needs?

It’s not uncommon to see someone paying premiums on a permanent life insurance policy to meet a temporary income replacement need that would be better solved by term life insurance. The unfortunate result in this scenario is that you pay too much for an insufficient death benefit. Conversely, using a sequence of term life insurance policies to address a permanent need is also problematic and could be the most expensive way to meet that need. If you own term life insurance, also review the type: level versus annual renewable. Annual renewable term, which features premiums that typically increase each year, can look appealing because premiums in early years are usually very inexpensive. However, premiums can skyrocket in later years when underwriting for a new policy is more challenging due to age and health changes. As a result, replacing annual renewable term with a level term policy while you are young and healthy can save substantial premium dollars over the long run.

3. Is the life insurance policy performing to your expectations?

If you own permanent life insurance policies, look beyond the premium. Many permanent life insurance policies (whole life, universal life, variable universal, indexed universal, etc.) are built based upon non-guaranteed assumptions, such as the credited interest rate, cost of insurance and other internal expenses, so they require regular monitoring to ensure they are meeting your original expectations. With historically low interest rates in the mix, the strain on these policies is very real. Review in-force ledgers periodically to ensure you can take appropriate action to address any underperformance, including payment of additional premium, reduction of death benefit, removal of riders, or smaller distributions.

4. Is the death benefit meeting your current needs?

In the years after purchasing life insurance, your life undoubtedly will change. Income increases, families grow, and death benefit needs increase, as well. In fact, among people who own life insurance, 20% believe they do not have enough. A simple needs analysis every year or two ensures that if there are gaps in coverage, you can take steps to address them.

5. Can you reduce your premium?

Those applying for life insurance too often receive only one carrier’s perspective and, as a result, leave underwriting opportunities on the table that could drastically reduce their life insurance premiums. For example, most carriers will apply more expensive smoker rates if there was any nicotine use within the past year, other than the occasional cigar. Some carriers, however, may offer far less expensive non-smoker rates if the nicotine use in the past year was not cigarettes or e-cigarettes. By surveying the top insurance carriers in the market and selecting one based on your individual circumstances, you can take advantage of these valuable underwriting opportunities.

6. Should you consider exercising conversion privileges?

What if you have a term policy that’s nearing the end of the level term period, but you still need life insurance? If your health has declined since purchasing the life insurance, it could be challenging, if not impossible, to obtain new coverage. Most term policies, however, have conversion privileges that allow holders to convert their policies to permanent policies with no additional underwriting, as long as the privilege is exercised within the conversion window. Some carriers even allow conversion to permanent policies with no-lapse guarantee death benefits. Conversion privileges may provide an especially attractive opportunity if you’ve had a significant change in health since purchasing a term policy.

7. Should you consider selling a life insurance policy?

Before making the final decision to surrender life insurance policies, make sure you’re receiving maximum value. Once a practice that had a certain “wild west” feel to it, life insurance settlements have become much more regulated and mainstream in recent years. If you are over age 65 and have had a significant change in health since purchasing your policies, you may consider exploring settlement instead of surrendering. Through life settlements, you can receive value in excess of the cash surrender value but less than the death benefit. Further, life settlements are not limited to permanent policies – even a term policy in the conversion period could have substantial value. Of course, if a financial institution is willing to purchase a policy, it believes it will derive a profit from the death benefit. It is therefore important to consider keeping that death benefit for beneficiaries.

The Bottom Line

In the end, it all comes down to need. Understanding how your needs match up with your current life insurance plan is the only way to ensure you, your loved ones, and your financial plan are adequately protected.

This article originally appeared November 11 on

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-20-1344

© 2021 Buckingham Strategic Wealth®

Averages often don’t illustrate the whole story, perhaps smoothing over many of the bumps that occur in life. Consider, for instance, your income: Some years you make more and some years less. You leave a high-paying job to start your own company, receive a major promotion, or see your income reduced by a furlough or layoff. Because the average is the trend – not the details – building a strong foundation allows you to survive the down years and thrive in the good ones.

No great tale starts with a discussion on financial stability, but plenty of horror stories begin with the failure to design, build and ultimately protect a long-term financial life plan. Strong income planning and a buttoned-up strategy for cash flow going into retirement will help give you flexibility when the inevitable surprise pops up, allowing you to weather incoming storms and enjoy a successful retirement.

Answering the Question: Do I Have Enough?

Making the change from saver to spender is a financial and mental hurdle, especially after 30 or 40 years of working hard and choosing to pay yourself first. There is no magic switch to flip to make this transition easy. However, creating a spend-down plan and paycheck replacement strategy will help you map out your path.

The spend-down plan is a piece of your overall financial plan designed to help you spend your assets in retirement and leave a legacy as tax efficiently as possible. Spend-down is the equivalent of the two-minute drill in football – where you have the lead and the ball. It outlines how you keep the ball in your possession, not run out of money while running out the clock, and win the game. Your paycheck replacement strategy is more like the plays you decide to call – that is, which source of income you use to cover your expenses in retirement.

The first question to answer before officially jumping into retirement is whether you have enough. What does your lifestyle cost? What are your sources of income? An unbiased financial advisor with an emphasis on planning can help run the numbers and discuss outcomes. If your probability of success is below your comfort level, you can reduce planned spending in retirement, work a few more years, or take on a passion project. Time is your friend in investing. The more you can delay taking money out of your portfolio, the more time it has to grow.

While more time in the workforce might not exactly line up with your initial retirement dreams, setting yourself up for a secure retirement you can enjoy remains a more than worthy goal. If, on the other hand, your probability of a successful retirement is high enough, you could look at your stretch goals and see if adding one or two of those is in the cards.

Once you are comfortable with your overall plan, the next step is to maximize your outcomes by minimizing taxes over your lifetime.

Paycheck Replacement Strategy: Cash Flow Planning

Accumulating assets is like building a ship in a bottle. Spending those assets is getting the ship out of the bottle without breaking it. Just as when you were building up your net worth, spending in retirement ebbs and flows, and tapping various income sources comes with different tax consequences. As a result, planning ahead to coordinate your income becomes vital.

While you may no longer receive a paycheck every two weeks, you still have sources of income that create taxes, like capital gains, IRA distributions, and Social Security to name a few. Social Security, required minimum distributions (RMDs), and pensions (if you are luckily enough to have one) are forced income. If you need additional dollars after those income buckets, look at lower-tax sources and weigh them against taking additional dollars from IRAs. While taking funds from a source like an IRA may result in higher income in the current year, it could also work to reduce the amount of wealth lost over a lifetime.

Often, the first few years of retirement come with increased spending on travel and leisure; maybe this accompanies a newfound sense of freedom. There may also be a big purchase or two, like a second home or an all-family vacation. Later in retirement, spending usually increases again, this time because of medical expenses. Given that spending is not consistent each year, having a plan for cash flow is important, especially if your income sources do not cover the full cost of retirement. For higher-spending years when your retirement income does not cover your expenses, the following income planning items may help you maximize the odds of good outcomes.

Determine lowest-tax-cost options for funding your lifestyle. RMDs are forced income at age 72. Take this money first. Review your taxable accounts for assets with the lowest appreciation and that are long term. Perhaps strategically withdrawing money from your Roth IRA will allow you to stay in a certain tax bracket. If you retire before age 72, looking to withdraw money from your traditional IRAs when income is low can reduce future RMDs and help you avoid a potentially higher tax bracket later in life.

Timing is critical. Planning for the big expenses by saving cash flow allows you to have money on hand when needed. If you are planning a big purchase a few years out, not reinvesting dividends or interest payments, reducing spending, or selling some appreciated assets to fill up a tax bracket can offer you more flexibly when making the purchase. Without planning ahead, you could lose more wealth to taxes if additional income generated to fund the purchase drives you into a higher tax bracket.

Look to utilize lower tax brackets in years where income is down. For example, if your income will decrease enough to take you below your normal tax bracket this year or for the next few years, consider taking out as much money as you can at that lower tax bracket without actually going over it. This allows you to withdraw funds now for future use at a lower tax bracket than you would be in later years. This could be a great time for Roth conversions, resetting basis on positions in taxable accounts, or taking additional IRA distributions.

Look to pay off high-interest-rate debt, and potentially your mortgage, before you retire. Each dollar used to pay off debt is a guaranteed return at the rate of the interest. Think of it this way: If you have debt with an interest rate of 10%, every additional dollar that pays down the balance earns a 10% return. Also, because debt is an obligation, lowering or paying off debt permits you more freedom in determining your monthly cash flows.

Cash is the most expensive way to give money. Creating a plan to donate money to charity in a tax-efficient manner helps reduce taxes without penalizing the receiving organization. If you are selling a business or will have higher taxes for a few years prior to retiring, look to pre-fund a donor advised fund (DAF) to cover your giving while in retirement. Consider donating enough to meet your charitable goals through age 72, when RMDs start.

At 72, you can use a qualified charitable deduction (QCD) to gift directly to charities, reducing your taxable income and providing funding to the cause of your choice. This route reduces income whereas a gift to a DAF is a below-the-line deduction.

Running the numbers and looking at more than just this year are the keys to success when planning a cash flow and tax minimization strategy for retirement. Doing so will help you build for future goals off a strong foundation and keep your financial plan from easily breaking at the first sign of stress.

This article originally appeared February 3 on

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-21-1702

© 2021 Buckingham Strategic Wealth®