How Can I Save Money on Taxes as an Executive? | Ask a Savant Financial Advisor
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How Can I Save Money on Taxes as an Executive? – Are you tired of getting surprised with a large tax bill every year because of your stock-based compensation? You’re not alone. Busy executives like you juggle a million things, and tax planning often gets pushed to the back burner. But here’s the deal: with a few smart moves, you can keep more of your hard-earned cash. Forget spending hours deciphering tax code – these three high-impact strategies are easy to implement and can make a big difference in your tax bill.
Before we get started, I want you to go to savantwealth.com/guides and download our Financial Advisor Evaluation Checklist. The strategies I am going to share with you today can potentially be implemented faster and more effectively with the help of the right financial advisor, and our checklist helps makes it easy for you to find the right fit.
Strategy #1 Maximize All Contributions
You’re probably already maxing out your 401(k) contributions to help reduce your taxable income, but you may be able to save even more than you think. As you’re already aware, your 401(k) contributions can be pre-tax or Roth, and you can also make a catch-up contribution if you’re over age 50. But there is a third type of contribution available in most 401(k)’s called “after-tax contributions.” The most attractive feature for high income earners is that you can convert these after-tax contributions to a Roth account when your employment ends. This potential tax savings can add up substantially for executives over the course of a long, successful career. Keep in mind the IRS imposes a limit each year on the total employer and employee contributions, and the after-tax contributions are included in that total.
Strategy #2 Don’t Wait to Donate
You may have built up an excess of company stock over time as your long-term incentives vest. At this point you may be sitting on significant capital gains which will eventually be subject to capital gains taxes when the stock is sold. If you’re charitably inclined, one strategy is to donate some of your highly appreciated stock into a Donor Advised Fund. A Donor Advised Fund allows you to donate the stock and receive an immediate tax deduction for the full value of the donation. There are no time constraints around when these contributions need to be donated to charity and the funds can continue to grow tax free, generating even more money that can be donated to your favorite charities in the future.
Strategy #3 Cash Balance Plan (For Some)
If you’re on the board of a public company, then you may be able to save tens of thousands of dollars more per year in taxes by contributing to a cash balance plan. You can often contribute significantly more than in a 401(k) plan. The amount of your contribution is based on your Director’s fees and/or any long term incentives you receive. An actuary is used each year to determine how much you can contribute. In addition to the tax savings, another attractive feature is the ability to roll the cash balance plan into an IRA at retirement someday, or convert this account to a monthly retirement income stream.
My name is Matt and I am a Financial Advisor with Savant Wealth Management. If you’re ready to learn more about proactive tax planning to help reduce your next tax bill, I encourage you to get in touch. Let’s figure this out together.
Don’t forget to check out savantwealth.com/guides and download our free Financial Advisor Evaluation Checklist. Whether you’re hiring a financial advisor for the first time, or comparing your advisor to someone new, this checklist is designed to help you feel more confident as you take that next step.
Matthew P. Witter
Financial Advisor
CFP®, CEP, ChFC®, AIF®