Tax Planning

Many people think that the only time they need to worry about tax planning is at or near retirement. But in fact, every time is the right time for tax planning.
For instance, at age 25-40, your income is constantly rising-and so is your tax bracket.

Ages 40-55, your probably at your highest earnings level, and at your highest tax bracket-even though college tuition bills may be coming through.

At 55-60, you'll need to make sure you'll have enough to maintain your standard of living after you retire.

After 65, you may be on a fixed income-but inflation will continue to erode the value of your savings.

So tax planning isn't something for other people to worry about; it's something we all need to do regularly. What counts isn't what you earn but what you keep after taxes. So how can you reduce your taxes now and in the years to come?

Annuities

Simply stated, an annuity is a contract between you and an insurance company. You pay a premium. In turn, the insurance company pays interest on that premium for a specified period of time. Under current law, during that time, called the accumulation phase, your contract's value grows tax-deferred-meaning it won't be taxed until you take it out. Your money is growing in three ways; the premium is earning interest, the money you normally pay in taxes is earning interest, and the interest id earning interest.

After the accumulation phase (usually at retirement), a payout (usually monthly) is determined-based on the value of the contract, the current interest-rate market, and you life expectancy according to the mortality tables. The money you receive will then be taxed at your current tax rate, which should be lower than in your earning years.

Those who have already retired can benefit from annuities as well. For instance, if your 65 or older and do not have an immediate need for all the income generated by your investments, shifting some assets into an annuity contract may help reduce your tax liability.

Municipal Bonds

Historically, safety of principal has been one of the greatest benefits of municipal bonds. This safety, coupled with the tax-exempt yields, makes municipal bonds an attractive source of fixed income.

The state and local governments to raise money for public purposes such as construction projects issue municipal bonds, maintaining streets and highways, eater and sewer systems, housing and hospitals. Under current law, the interest income you eaten on these bonds are exempt from federal taxes (unless you're subject to the alternative minimum tax, or AMT). If you buy a municipal bond issued by the state in which you live, the interest is also often exempt from state and local taxes.

Tax-Exempt Mutual Funds

If you're interested in the tax and safety benefits of municipal but would like to diversify your investment in a bond portfolio, you may want to consider a tax-exempt mutual fund (municipal bond fund).

These funds are made up of bonds chosen by professional portfolio managers. They offer the professional expertise and diversification that can reduce your investment risk. And you still enjoy the same tax-exempt income-especially on a portfolio of bonds issued by the state in which you live.

Municipal-bond fund is open-ended and may expand. The manager may buy and sell bonds to adapt to changing market conditions, so the return on your investment fluctuates.

Your accountant, tax advisor or financial consultant can tell you more about investments that can help you reduce the tax biter-this year and beyond.

ENB Associates is a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw & Co., Inc. Member NASD and SIPC. Products purchased through O'Keefe Shaw may lose value, are not deposits with obligations of, or guaranteed by Evans National Bank or affiliates and are not insured by the FDIC.