I'm a Financial Planner: 5 Tax Planning Tips I Always Share With My Millennial Clients
Millennials are juggling a lot at once: a first home, a growing family, career ups and downs and the long-haul goal of building real wealth. Somewhere in that mix, taxes usually get shoved to the bottom of the to-do list, right until filing season drags them back to the top.
That’s a costly habit, because most of the decisions that actually move the needle on your tax bill happen months before you ever open a return. Luis Menjivar, a financial advisor at Northwestern Mutual in San Diego, has five moves he makes sure his clients don’t skip.
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1. Review Withholding After Every Major Life Change
Marriage, a new baby, a home purchase, a promotion, a new job, the list goes on and on. Any of these can shift a tax situation, and Menjivar said waiting until filing season to find out is not the way to go.
"I encourage clients to review their withholding whenever one of these changes occurs rather than waiting until tax season to discover that they withheld too much or too little," he said.
He said this is especially important for dual-income married couples, since two paychecks can create withholding gaps that neither spouse notices on their own.
2. Capture the Full Employer Match Before Anything Else
Retirement contributions come with real tax advantages, but Menjivar's first priority isn't the tax benefit itself.
"I recommend starting with at least enough to receive the full employer match, if one is offered, and then considering whether additional contributions fit within the client's broader budget," he said.
From there, the goal shifts to balance. "The goal is to balance retirement savings with other priorities, including emergency savings and debt repayment."
3. Think Past This Year When Choosing Traditional or Roth
The traditional-versus-Roth question isn't really about age, according to Menjivar. It's about where income is most likely headed.
"A traditional contribution may provide a tax benefit today, while a Roth contribution can create tax-free qualified income in retirement," he said.
For millennials whose earnings are likely to keep climbing over the next few decades, Menjivar said, "to consider whether having both types of accounts could provide greater flexibility later."
4. Use an HSA for More Than This Year's Doctor Visits
A health savings account (HSA) often gets treated as a place to park money for the next prescription or checkup. Menjivar pushes clients to think further out.
"Contributions may be tax-deductible or made pre-tax, earnings can grow tax-free and withdrawals for qualified medical expenses are generally tax-free," he said.
When the budget allows, he has another plan for his clients. "I often encourage clients to consider investing a portion of the balance for future health care costs rather than treating the account solely as a short-term spending tool."
5. Weigh the Tax Impact Before Rebalancing a Portfolio
Selling an investment can trigger a tax bill even if the money goes right back into something else. Menjivar wants that factored into the decision, not discovered afterward.
"Selling an investment can create a taxable gain, even when the proceeds are immediately reinvested elsewhere," he said.
Losses can work in the opposite direction, offsetting certain gains when used strategically.
"Taxes should inform the decision, but avoiding taxes should not be the only objective," he said.
The Bottom Line: Tax Planning Is a Year-Round Habit
Menjivar's closing point ties all five tips together. Tax planning isn't a once-a-year struggle squeezed in before a filing deadline. He believes millennials should revisit their strategy throughout the year and stay in touch with both a financial advisor and a tax professional.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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