Carolanne Chavanne, CFP®

When George Harrison wrote the song Taxman, he did so to protest a progressive income tax imposed in the United Kingdom which saw the Beatles, who were amongst the highest earners in the country, required to pay a whopping 95% “supertax.” This led to the lyric where they sing, "There's one for you, nineteen for me." Fortunately, the income taxes in our country (and many of the individual states) have not risen that high. However, it is always a good idea to be aware of what your tax liabilities are, and, more importantly, what you can do to legally minimize those costs. This is where a strong tax planning strategy becomes important. 

Carolanne's Corner 

I suppose a summer newsletter dedicated to taxes might not seem very timely, but here at Prosperity Wealth Planning, the truth is that we spend most of the year with tax planning strategies top of mind. It's important to note that tax planning  should not be confused with tax preparation which is generally done each year before April 15th. Tax preparation is what you do with your CPA, or software programs on your computer, to determine whether you will have to pay, or receive a refund, for the most recent tax year. Conversely, tax planning refers to the process used to determine which of your assets are subject to taxes, and how those assets can be restructured to reduce your tax exposure, thereby allowing you to hang on to more of your money. Clearly, there is a big difference between the two, and a good tax plan should help take some of the sting out of what the tax preparation uncovers. The diagram below shows the key differences between tax planning and tax preparation -


Tax Planning Strategies

There are several tax strategies that can be used to help reduce taxes now and possibly in the future:

Roth Instruments

Roth IRA Contributions

  • Roth IRA contributions are made on an after-tax basis, which means that all future withdrawals are tax-free. However, there is a limit to what can be directly contributed to a Roth IRA based on income level. If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be less than $153,000 for tax year 2023 for you to be able to directly contribute to a Roth IRA. If you're married and file jointly, your MAGI must be under $228,000 for tax year 2023. The maximum total annual contribution for all your IRAs combined is: $6,500 if you’re under age 50 / $7,500 if you’re age 50 or older.

Roth IRA Conversion

  • A Roth IRA conversion involves the transfer of retirement assets from a traditional IRA, simplified employee pension (SEP), or SIMPLE IRA, into a Roth IRA. While the account owner has to pay income tax on the money that is being converted, all future withdrawals from the account will be tax-free.

Back-door Roth IRA Conversion

  • A "backdoor” Roth IRA conversion allows higher income earners to fund a Roth despite the above-mentioned IRS income limits. This "back door” takes post-tax funds (savings on which you’ve already paid taxes) that you contributed to a traditional IRA, then transfers those funds into the Roth IRA. So, even though your income would have disqualified you from contributing to a Roth, the back door can be used to get around it. That's good news, because again – like all Roth IRAs – your money grows tax-free, which is a pretty sweet perk when it comes time to take your money out in retirement.

Mega Backdoor Roth Conversion/401(k)

  • Roth and Back Door Roth IRA weren’t enough?!? You mean there’s also a Mega?!? Yes, the mega backdoor Roth 401(k) allows you to contribute a maximum of $66,000 to it in 2023. How? A couple of conditions must be met:
    •  The regular 401(k) contribution for 2023 is $22,500 ($30,000 for those 50 and older).
    •  You can also contribute an additional $43,500 of after-tax dollars into your 401(k) account, assuming you don't get an employer match or profit-sharing. [If you do get an employer match or profit-sharing, you'll need to deduct your employer contributions from the $43,500].

The mega backdoor Roth 401(k) enables you to take the after-tax dollars you contribute and transfer them into a Roth IRA. Or, if you have a Roth 401(k) at work (and the plan allows for the mega option), you can choose whether the final destination of your mega contributions is the Roth 401(k) or a Roth IRA. If your employer offers only a traditional 401(k), then your mega contributions would end up in a Roth IRA.

Donor Advised Funds

 A donor-advised fund, or DAF, is an investment account set up for the sole purpose of supporting your preferred charitable organizations. Whether you contribute cash, securities, or other assets to a donor-advised fund, you are generally eligible to take an immediate tax deduction. Those funds can then be invested for tax-free growth, and you can direct the funds to virtually any IRS-qualified public charity. A Donor Advised Fund allows you to:

  •  Easily contribute a wide range of assets. Assets generally accepted include:
    • Publicly traded securities or mutual fund shares
    • Restricted stock
    •  Cash
  •  Maximize potential tax benefits
    • Your charitable contribution makes you immediately eligible for a tax deduction, just as you would by donating to any other public charity.
      • Cash donations – If you donate cash, via check or wire transfer, you're generally eligible for an income tax deduction of up to a maximum of 60 percent of your adjusted gross income.
      • Donations of long-term appreciated assets – Donating long-term appreciated securities directly to charity—instead of liquidating the asset and donating the proceeds—can help in two significant ways: you get to maximize your tax benefit, and the overall amount you have contributed to the charity is higher, since it is coming into them pre-tax. These donations provide two benefits:
        • You'll receive an income tax deduction of the full fair-market value of the asset, up to 30 percent of your adjusted gross income. 
        • You'll be able to eliminate the capital gains taxes on long-term appreciated assets, provided you've owned them for more than a year.
  •  Invest your donation for tax-free growth
    •  Once you've contributed to a donor-advised fund, you can then begin an investment strategy —potentially growing your account through the returns on your investments while providing you with more dollars to give to charity.
  • Simplify recordkeeping and organization
    • With a donor-advised fund, you don’t have to keep track of every gift acknowledgment from every charity you support. Instead, just the receipts from your DAF contributions. And when you’re ready to contribute to your favorite charity, you can simply log in to your account and recommend a grant to any IRS-qualified public charity. 

Tax Loss Harvesting

The bad news: not every investment will be a winner. The good news: a losing investment does have a "silver lining". You may be able to use a loss to lower your tax liability and better position your portfolio going forward. This strategy is called tax-loss harvesting, which generally works like this: 

  • You sell an investment that's underperforming.
  • Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income.
  • Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.

These are just a few of the tax planning strategies that may be of benefit to you.  Let’s make sure and discuss your options during one of our upcoming planning sessions!

News and Upcoming Events

TD Ameritrade/Charles Schwab Integration 

The integration of TD Ameritrade and Charles Schwab is scheduled to be completed over Labor Day weekend on September 5th.  If you have accounts with TDA, the best way to ensure your account login information will automatically transfer to Schwab is to login and set up your e-delivery options. On the other hand, if you already have accounts at Charles Schwab, there will be no impact to your accounts, and no action is required on your part.  

  • If you are a TD Ameritrade client and have registered to before, login using your username and password. To update your e-delivery options, click on My Profile > Security & Preferences > Communication Preferences > Update your setting to Go Paperless

  • If you are a TD Ameritrade client and have not yet set up your login, you may register by visiting and clicking on the ‘set up my profile’ found on the lower right corner of your screen. Follow the instructions to set up your login ID and password credentials.   

This integration has got us thinking about how we might improve our own tactics and the service offerings in 2024. We are in the process of putting together some details right now and will have more to provide in the coming weeks. Keep an eye our for more information coming soon in your inbox!

Coffee with Carolanne

The next Coffee with Carolanne session is coming up on August 22nd at 5pm PT / 7pm CT, and the topic will be “Estate/Legacy Planning.” Be on the lookout for an invite to RSVP and save your spot early for this popular event.  

Fall Prosperity Planning Sessions

The Fall Prosperity Planning Sessions will be held September through November this year. We will start scheduling appointments the week of July 24th. The fall sessions continue our emphasis on holistic financial planning and will focus on the following topics: 

  • Financial and Investment Plan Review
  • Contribution/Distribution Check-up
  • Beneficiary Updates
  • Estate Plan Analysis
  • Tax-loss Harvesting

Articles of Interest 

Important Numbers 2023
Plan Taxes 2 Years at a Time 
Moving for Work? How to get a Tax Deduction
Estate Planning: Tax Planning
Are You Prepared for an Estate Tax Sunset?


Summer is finally here, and the “June Gloom” weather pattern here in Southern California has come and gone. We hope you all had the opportunity to celebrate the Fourth with family and friends and are planning outings and vacations to take advantage of the long days and warm evenings. Think about it – we're already halfway through the year! We still have a lot to do over the next six months, and we are looking forward to seeing you at least once more before the end of the year. As always, thank you for your trust and support. 



*Prosperity Wealth Planning does not provide tax or legal advice. Please consult with an accountant or attorney for specific tax or estate planning advice.

By Carolanne Chavanne, CFP®

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