I recently attended a tax planning conference for financial advisors, and one statement from a presenter made me laugh out loud: “Tip your server, not the Internal Revenue Service!”

It’s a simple idea but one that everyone could get behind. We all know that we need to pay our fair share of taxes, but people usually don’t want to give the government more than necessary. Here are a few key concepts reinforced at the conference, ideas that could help you keep more of what you’ve earned by making thoughtful tax decisions.

1. Know How Different Accounts Are Taxed

As clients near retirement, one of their biggest concerns is how their income will replace the paychecks they’re used to bringing home. Because every situation is different, the strategy could depend on the assets accumulated, how those resources will generate reliable cash flow, and whether taxes are better paid now or later. It also may depend on what types of assets clients want to leave to beneficiaries.

To build an effective plan, it’s important to understand how the government taxes different investment accounts:

Retirement accounts (401(k), Traditional IRA): Investors typically make contributions with pre-tax dollars, so the government taxes withdrawals as ordinary income.
Roth IRAs: Investors make contributions after taxes, but qualified withdrawals (generally after age 59½ and meeting the five-year rule) are tax-free.
Brokerage accounts: These investment accounts are funded with after-tax dollars, and investors generally owe taxes only on investment gains, often at lower capital gains rates.

Having a mix of these account types could create flexibility to manage taxes more strategically in retirement. One of the most important tax decisions people face is recognizing that a strategy that makes sense in one season of life may not make sense in another depending on their circumstances.

2. Make Tax Decisions Based on Your Tax Bracket at Each Stage of Life

Each stage of life could present new tax-planning opportunities, from early accumulation years to peak earning years and eventually retirement. Because tax brackets often change over time, your strategy should adapt as well.

During early accumulation years, many individuals are in lower tax brackets. Capturing an employer match should remain the first priority but after that, Roth contributions may be beneficial. Paying taxes at a lower rate today could help create tax-free income later and provide flexibility when managing retirement withdrawals.

During high-earning years, the focus often shifts toward reducing current taxable income. Strategies may include:

Maximizing contributions to pre-tax accounts such as 401(k)s, IRAs, and HSAs
Continuing to build after-tax savings through brokerage accounts
Using backdoor Roth contributions when appropriate

Brokerage accounts could be especially helpful for individuals planning to retire before age 59½, because they provide accessible funds without early withdrawal penalties.

During lower-income retirement years, taxable earned income often declines, sometimes placing retirees in a lower tax bracket than during their working years. This could create an opportunity to consider Roth conversions, moving funds from a Traditional IRA to a Roth IRA at a potentially lower tax rate.

This strategy may:

Reduce future Required Minimum Distributions (RMDs)
Help manage future tax brackets
Create tax-efficient assets for beneficiaries

If beneficiaries inherit a Traditional IRA, they must pay taxes at their own rates, which may be higher than the rate at which conversions could have occurred.

3. Make Charitable Giving Decisions With Tax Awareness

Many generous individuals give to charities using cash, because it’s simple and familiar. While cash gifts could be deductible if you itemize, there often are more tax-efficient ways to give.

Donate Appreciated Stock: If you itemize, you could avoid capital gains taxes on the appreciation by gifting to charities investments that have increased value while still deducting the fair market value of the donation.

Use a Donor Advised Fund (DAF): This could be especially beneficial if you have a particularly high-income year. This approach allows you to:

Receive an immediate tax deduction
Avoid capital gains if using appreciated donated assets
“Bundle” multiple years of charitable giving into one year to exceed the standard deduction
Invest the assets to potentially grow, allowing for additional grants to charities over time

Qualified Charitable Distributions (QCDs): For individuals age 70½ or older, this is a valuable strategy. These are donations made directly from an IRA to qualified charities. By using an IRA, it reduces future taxable distributions. When you hit Required Minimum Distribution (RMD) age, it also helps satisfy the RMD in a tax-free way.

4. Why Coordinating Your Financial Advice and Accountant Matters for Tax Planning

Each of these general strategies includes important nuances based on each person’s financial situation and goals Please consult a qualified tax professional regarding your specific situation. The most effective tax planning can often occur when your financial advisor and accountant work together.

Your accountant should understand the financial strategies you are implementing, and your advisor should stay aware of the tax implications connected to those decisions. Coordinated planning helps reduce mistakes, could improve efficiency, and potentially help you capture opportunities you might miss on your own.

Most importantly, it could help you from accidentally “tipping” the IRS.

At Foster Group, we help individuals and families navigate tax decisions through each stage of life, with a focus on aligning planning strategies to what matters most. Thoughtful tax planning isn’t just for accountants – it’s an important part of a well‑coordinated financial plan. What does it mean to be truly cared for? It means we understand your passions and use proven methods to help you reach your goals. If you’d like to discuss how these ideas may fit your situation, reach out – we’re here to help.