In the dynamic landscape of retirement planning, the article "Managing Taxes in Retirement using the Effective Marginal Tax Rate" published in Advisor Perspectives by Dr. Wade Pfau and Joe Elsasser, CFP®, provides valuable insights into tax-efficient distribution strategies. As the founder and president of Covisum, Elsasser has played a pivotal role in developing solutions that cater specifically to Registered Investment Advisors (RIAs) who specialize in comprehensive financial planning for mass-affluent American clients in or approaching retirement age. Read on for a summary of the article.
Challenges in Retirement Tax Planning
"Managing Taxes in Retirement using the Effective Marginal Tax Rate" delves into the challenges of managing taxes during retirement, introducing the Effective Marginal Tax Rate (EMR) methodology as a critical strategy. Covisum's software, pioneered by Elsasser, utilizes tax maps to track the effective marginal tax rate on each dollar of ordinary income. This approach helps RIAs navigate the Social Security "tax torpedo," preferential income stacking, Medicare-related increases, and the Net Investment Income Tax (NIIT).
Dr. Pfau and Elsasser compare the conventional retirement strategy with a tax-efficient approach. The conventional wisdom suggests spending taxable assets first, then tax-deferred, and finally tax-exempt assets. In contrast, Covisum's software encourages a more nuanced strategy involving a blend of taxable and tax-deferred assets, strategic Roth conversions, and a shift to tax-deferred and tax-exempt assets later in retirement.
Covisum's EMR Method: A Case Study in Tax Planning Success
The article provides a detailed case study that illustrates how the EMR method, implemented through Covisum's software, outperforms the conventional strategy. The tax-efficient approach yields a higher after-tax legacy and a superior net after-tax return.
Unlock Success Covisum's Software for RIAs
For small RIAs engaged in comprehensive financial planning for mass-affluent American clients in or approaching retirement, Covisum's full software stack emerges as a powerful solution. By incorporating the EMR methodology, risk, tax, and Social Security planning, Covisum enables RIAs to navigate the intricacies of tax planning, providing a competitive edge in optimizing retirement income strategies.
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