As you build wealth and approach retirement, taxes can significantly impact your investment income. For Californians facing some of the highest tax rates in the country, concerns about preserving enough income to enjoy retirement fully are common.

Are you looking for strategies to help reduce tax impact on your hard-earned savings?

At Bulman Wealth Group, our experienced team assists individuals and families across California in building sustainable wealth and creating tax-efficient retirement plans. With careful planning, you can minimize the effects of taxes and keep more of your investment income.

In this article, we’ll explore five strategies to help protect your investment income from tax erosion—from tax-advantaged accounts to charitable giving—supporting a more tax-efficient approach to retirement planning in California.

Strategy 1: Tax-Advantaged Retirement Accounts

Using tax-advantaged accounts can be a powerful tool for growing your wealth without losing a significant portion to taxes.

Traditional IRAs vs. Roth IRAs

Both Traditional and Roth IRAs offer tax benefits, but each takes a unique approach:

• Traditional IRAs: Contributions are tax-deductible only in certain situations. However, even if they’re not deductible, contributions still grow tax-deferred. When you leave or retire from a company, your retirement savings can often be rolled over into a Traditional IRA without tax consequences. After age 59 1/2, withdrawals are taxed as ordinary income.

• Roth IRAs: Contributions are made with after-tax dollars, so there’s no immediate tax benefit. Withdrawals in retirement are tax-free, which can be advantageous if you expect a higher tax bracket in retirement.

Employer-Sponsored Plans: 401(k), 403(b), and 457 Plans

If you can access a 401(k), 403(b), or 457 plan, these employer-sponsored retirement accounts allow you to contribute pre-tax dollars, reducing taxable income. Contributions grow tax-deferred until withdrawal, providing significant tax savings over time. These plans are particularly valuable for California residents with high state income taxes.

Self-Employment Retirement Plans: SEPs and Solo 401(k)s

For self-employed individuals, options like SEP IRAs and Solo 401(k)s provide powerful tax advantages. Contributions to these plans are typically tax-deductible, reducing taxable income while allowing retirement savings to grow tax-deferred.

Bulman financial advisors in California can help you determine which retirement plan best aligns with your financial goals.

Strategy 2: Tax-Loss Harvesting

Tax-loss harvesting is a strategy to reduce taxable income by selling investments at a loss to offset gains. For example, if you realize gains from stocks in a taxable account, selling other assets at a loss can help lower your tax bill.

Keep in mind the IRS wash-sale rule, which prevents you from repurchasing a similar investment within 30 days before or after the sale to claim the loss. If your losses exceed gains, you can carry forward up to $3,000 per year to offset ordinary income, with remaining losses rolling over to future years to offset gains first.

Tax-loss harvesting requires a thoughtful approach. Bulman Wealth advisors can review your portfolio to help you identify retirement tax benefits in California.

Strategy 3: Tax-Free Municipal Bonds

For Californians, tax-free municipal bonds offer a way to earn income without state and federal taxes on interest. Known as “munis,” these bonds are issued by state or local governments for public projects. Interest is typically tax-free at the federal level, and California bonds may also be exempt from state taxes.

Municipal bonds can attract retirees seeking steady income with minimal tax impact. However, there are some risks, such as credit risk (the issuer’s financial health) and interest rate risk, which can cause bond prices to fluctuate.

If you’re interested in municipal bonds, it’s wise to consult an experienced financial advisor like those at Bulman Wealth for guidance.

Strategy 4: Tax Benefits of Long-Term Care Planning

With rising medical expenses, healthcare and long-term care planning in California have become vital for safeguarding assets. Fortunately, there are potential tax benefits.

Since Medicare and Medigap insurance typically don’t cover extended stays in nursing facilities or home health care, these costs are often out-of-pocket—and can be substantial. Medi-Cal may cover long-term care, but only after most assets are depleted.

One solution is purchasing long-term care insurance, which can help cover these expenses and provide tax benefits. Qualified long-term care insurance premiums are often tax-deductible up to certain limits based on age, and benefits from qualified policies are generally tax-free, helping offset high care costs.

Another option is hybrid policies, which combine life insurance or annuities with LTC benefits. These allow policyholders to use part of the death benefit or cash value for LTC expenses, often tax-free if used for qualifying costs.

Bulman advisors can help determine if long-term care insurance fits your healthcare and financial needs.

Strategy 5: Charitable Giving

Charitable giving is a rewarding way to support causes you care about while reducing taxable income.

• Charitable deductions: Donating to qualified organizations can lower reportable income, especially if you itemize deductions. Gifting appreciated assets directly avoids capital gains taxes while supporting a favorite cause.

• Donor-advised funds (DAFs): DAFs offer a flexible way to give by allowing contributions to an account that grows tax-free. Contributions are eligible for an immediate tax deduction, even if funds are distributed to charities over time.

• Qualified Charitable Distributions (QCDs): If subject to Required Minimum Distributions (RMDs), you can donate directly from your IRA through a QCD, potentially reducing your taxable income.

• Charitable Remainder Trusts (CRTs): For larger donations, CRTs allow you to donate assets, receive an income stream for a set period, and leave the remainder to charity. The tax deduction is based on the present value of the gift, benefiting both you and the charitable organization.

Bulman’s Financial Advisors in California Can Help

Navigating tax-efficient strategies requires time and foresight, especially with frequent tax changes. An experienced financial partner can make a meaningful difference.

Bulman Wealth Group helps clients manage taxes effectively in retirement, aiming to preserve investment income and support long-term goals.

Whether you’re exploring municipal bonds, long-term care planning, or charitable trusts, our fiduciary financial advisors will work with you to create a personalized strategy that fits your lifestyle.

If you’re ready to explore tax-efficient investing for greater financial confidence in your California retirement, we invite you to connect with us for a free consultation.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or an indication of future results.

Opinions expressed herein are solely those of Chris Bulman Inc. dba Bulman Wealth Group and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Investment advisory services are offered through Chris Bulman Inc dba Bulman Wealth Group, an SEC Registered Investment Advisor. Insurance products and services are offered through Chris Bulman, Inc. dba BWG Insurance Agency and Ameritas Life Insurance Corp., CA State Insurance License # 0M46922. Being registered as an investment advisor does not imply a certain level of skill or training.

Bulman Wealth Group, BWG Insurance Agency and Ameritas Life Insurance Corp. are not affiliated with or endorsed by the Social Security Administration or any other government agency.

Any statements or opinions expressed should in no way be construed or interpreted as a solicitation to sell, or offer to sell, advisory services to any residents of any State other than the States where otherwise legally permitted.