Capitalizing on AGI — Tax Planning

A wealth management executive in Mooresville, North Carolina, Cubby Bice holds an MBA in finance from Georgia State University and is currently pursuing his Ph.D. in finance at Liberty University. Cubby Bice serves as president of Bice Wealth Management, where he assists clients with their individual and business planning needs, such as retirement planning and tax planning.

The first step toward efficient tax planning is learning about adjusted gross income (AGI). AGI must be reported to the IRS through IRS Form 1040 when filing annual income tax returns.

AGI on tax liability is that it excludes nontaxable income from the gross income taxable. Nontaxable income includes the money that goes to student loan payments, 401(k) accounts, IRA accounts, or other designated nontaxable areas. Financial advisors are conversant with taxable and nontaxable income and help clients reduce their annual AGI as much as possible to minimize tax liability.

While retirement accounts like 401(k) can exempt up to a certain amount of monthly income from tax, the money transferred to these accounts can’t be used at any time. Retirement account owners have to reach a certain age (around 60) before they are qualified to withdraw money from these accounts.

While the law does not proscribe early withdrawal, it comes with an obligation to pay tax on the withdrawn amount and extra fees, which is a disadvantage. If retirement saving is implemented as a strategy to reduce AGI, it’s germane to ensure that the savings won’t be needed before retirement.

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