Throughout life, time, energy, and money rarely align. Early in a career there is time and energy but limited money; mid-career, money grows while time is scarce; in later years, time and money may be ample but energy is not.
Too often, investors underestimate the impact that taxes can have on their overall returns. It’s an often-overlooked factor that can tilt the scales in your favor or work against you.
Tax Planning for Different Life Stages
Young Professionals: Starting on the Right Foot with Smart Investment Choices
If you are in your twenties, time is your most valuable asset. Starting now allows compounding to do the heavy lifting over the decades ahead.
You’re fresh out of college and just starting your career. It can be intimidating to invest, especially when you have student loans to pay. You may even think of pushing it back. After all, you have all the time in the world, right?
Financial responsibilities do not disappear over time; they change. Student loans today become childcare and mortgage payments tomorrow. Saving now means earning interest on interest (i.e., compound interest).
Savers in a lower tax bracket often benefit from prioritizing a Roth IRA or Roth 401(k). In these accounts, the contributions are made after tax. You won’t receive an immediate tax deduction, but your qualified withdrawals upon retirement are tax-free. Paying taxes on your contributions now can be advantageous, as you are likely to pay lower taxes now than in the future when you are earning more.
If you expect your tax rate to be lower in retirement than it is today, a traditional 401(k) or IRA may serve you best. Contributions are made with pre-tax dollars, reducing your taxable income in the year you contribute. The funds then grow tax-deferred, and you pay tax on withdrawals in retirement, ideally at a lower rate.
Mid-Career Investors: Balancing Tax Planning with Financial Goals
Mid-career investors are often juggling competing priorities: their own financial goals, their children’s education, and the growing pressure to prepare for retirement. At this stage, reducing your tax burden through smart investment strategies can be a meaningful advantage.
You’re now a high-earning individual who has reached the contribution limits for your 401(k) and IRA. If so, you may want to consider other potential avenues to support your retirement goals.
1. Health Savings Account (HSA)
Consider establishing a health savings account (HSA). This type of account has a three-tiered tax benefit:
- It allows for contributions with pre-tax funds.
- Offers tax-free growth on investments.
- Permits tax-free withdrawals for qualified healthcare expense at any age. After age 65, non-medical withdrawals are taxed as ordinary income without the additional penalty.
2. 529 College Savings Plan
Your extra money can also go into your child’s 529 college savings plan. The tax benefits of these plans vary depending on your residence. Some states offer deductions for contributions, while others provide tax credits. Furthermore, eligibility criteria may vary, with certain states limiting eligibility to parents and others allowing any contributor.
- In Arizona, individuals can claim tax deductions of up to $2,000, while married couples filing jointly can claim up to $4,000 (2026 limits).
- In Colorado, contributions are fully deductible up to $26,200 per beneficiary for single filers and $39,200 for married couples filing jointly (2026 limits).
- In Nebraska, single filers and married couples filing jointly can deduct contributions up to $10,000 ($5,000 for married couples filing separately) (2026 limits).
- In Wisconsin, single filers and married couples filing jointly can deduct contributions up to $5,280 ($2,640 each for married couples filing separately) (2026 limits).
Wherever you live, including Arizona, Colorado, Nebraska, and Wisconsin, our investment tax professionals can provide more information on your state’s eligibility rules.
3. Trump Accounts
Established under the 2025 tax law,Trump Accounts are a new tax-advantaged way for families to save and invest for a child’s future. Parents, relatives, and others can contribute a combined total of up to $5,000 per year while the child is under 18. No withdrawals are permitted until the year the beneficiary turns 18; at that point, the account is generally treated as a traditional IRA, with earnings taxed on withdrawal and the usual early-withdrawal rules applying. Contributions grow tax-deferred in the meantime.
- Children born from 2025 through 2028 are eligible for a one-time $1,000 federal deposit, provided a parent or guardian files the required election to set up the account.
- Employer contributions of up to $2,500 per year, if offered, count toward the same $5,000 annual limit.
- Investment options are limited to eligible low-cost funds that track a broad U.S. equity index, rather than being open to any stock, fund, or account you choose.
- Contributions made by parents or other individuals are not tax-deductible, though the account grows tax-deferred until money is withdrawn.
Seniors and Retirees: Preserving Wealth and Planning for Taxes
Many think they’ve reached the finish line upon retirement and come unprepared for the long haul. One of the hardest adjustments is mental: after decades of disciplined saving, you now have to decide how much you can comfortably spend, and shifting from a saver’s mindset to a “right amount to spend” mindset is rarely straightforward.
1. Required Minimum Distributions (RMDs) and Tax Implications
Employer-sponsored plans hold pre-tax contributions, so taxes are eventually due on those funds. That is the purpose of required minimum distributions (RMDs). Thus, individuals born from 1951 through 1959 must begin RMDs at age 73; those born in 1960 or later begin at 75. The first distribution may be deferred to April 1 of the year following the year you reach that age. Missing an RMD triggers a 25% excise tax on the shortfall, reduced to 10% if corrected within the allowed correction window. However, there are strategies that may help you manage their impact on your taxable income.
First, if your plan allows it, you can continue working past your RMD age to delay distributions from your current employer’s 401(k). You might also review whether converting over assets into a Roth IRA fits your plan, as Roth IRAs do not require RMDs and growth in the accounts accumulate tax free. Keep in mind that moving pre-tax retirement funds into a Roth account is a taxable event: the converted amount counts as ordinary income in the year of the conversion. You can manage that impact by spreading conversions across several years or timing them for years when your income is lower.
Another option is to utilize qualified charitable distributions (QCDs). Once you reach age 70 1/2, you can transfer up to $111,000 (for 2026, indexed for inflation) directly from your IRA trustee to a qualified charity. Using this strategy, you can satisfy RMD requirements while potentially excluding these funds from your taxable income. For some taxpayers, this can also help lower the taxable portion of your Social Security benefits by keeping the distribution out of your adjusted gross income.
2. Withdrawal Sequencing
Your Social Security benefits may be subject to higher taxes if your income exceeds certain thresholds. Withdrawal sequencing may help manage your income levels and potentially reduce the impact on your Social Security benefits.
For some people, it may make sense to initiate withdrawals from taxable investment accounts first. This approach could leave tax-deferred retirement accounts untouched for longer, though these withdrawals may be subject to capital gains tax. Others may find a different order works better based on their income needs, tax bracket, or overall retirement plan, since no single sequence fits every situation.
3. Long-Term Care and Tax Considerations
Depending on the type of care, senior living can cost from $3,200 (independent living) to $6,500 -$8,000 (memory care) monthly and $34 per hour for in-home care. Therefore, you need to plan for long-term care, and having a good grasp of the tax consequences can help aid in managing overall costs.
Some individuals may qualify to deduct long-term care expenses if they meet certain criteria. You should maintain detailed records of qualifying medical expenses, including nursing home costs, in-home care expenses, and necessary medical supplies. Additionally, eligible long-term care insurance premiums count as deductible medical expenses, subject to age-based annual dollar limits. As with all medical expenses, only the total exceeding 7.5% of adjusted gross income is deductible as an itemized deduction.
Tax Planning at Every Stage of Life
Every stage of life brings its own tax planning opportunities, from Roth contributions in your twenties to managing required minimum distributions in retirement. The right choices depend on your income, your goals, and where you are in that arc, and they rarely stay the same for long.
That is where working with a professional makes the difference. The team at MBE CPAs can help you weigh these options, coordinate them with the rest of your financial picture, and build a personalized strategy designed to keep more of your wealth working toward what matters most to you. Whatever stage you are in, the sooner you plan, the more options you have.