The Gap Between Your Tax Return and Your Financial Plan

Would you rather pay 33% tax on $100,000, or 33% on a million dollars?

That question, posed by our new Director of Tax Services Garrett Murphy during a recent conversation, reframed something I've believed for over twenty years as a financial advisor but never heard stated so cleanly. The answer seems obvious. But the number of people whose retirement accounts are structured to guarantee the worse outcome is staggering.

Tax season just ended. Most people filed their returns and moved on. But there's a gap between your tax return and your financial plan that most people never close, and that's where the money gets lost. Not in bad investments, not in market timing, in tax planning that never happened.

I sat down with Garrett to talk about what he observed in his first tax season at Beck Bode, where we now manage tax preparation and investment management under one roof. Here's what we covered, and the full conversation is below.

Key Takeaways

• Your effective tax rate is the first number to check after filing. Divide your total tax by your adjusted gross income. That single percentage tells you whether your withholdings, estimated payments, and deductions are calibrated correctly, or costing you money.
• A Roth conversion has no dollar limit. You can roll any amount from a traditional IRA into a Roth. You'll pay taxes on the conversion, but every dollar of future growth and qualified withdrawals comes out tax-free, with no required minimum distributions.
• The "gold standard" in retirement is a low AGI with high actual wealth. When most of your assets sit in a Roth structure, your tax return shows minimal income. That keeps Medicare premiums low, preserves deductions, and simplifies estate planning.
• When your CPA and financial advisor don't share a roof, you become the middleman. Most planning gaps aren't caused by bad professionals — they're caused by a system where no one sees the full picture at the same time.
• The SALT cap increased from $10,000 to $40,000 under the One Big Beautiful Bill Act for tax years 2025–2029. Section 179 bonus depreciation is also back at 100% for qualifying business purchases.

How Do I Calculate My Effective Tax Rate?

Divide your total tax paid for the year by your adjusted gross income, that's your effective tax rate.

Definition: Effective tax rate is the actual percentage of your total income that you paid in taxes, as distinct from your marginal tax bracket, which only applies to the last dollar earned.

It's the single most useful number on your return that most people never calculate, and it's where Garrett says every client should start once they've filed.

Garrett does this for his own family every year. It tells him whether his withholdings are set correctly, whether a large refund means he's been giving the government an interest-free loan, or whether he needs to adjust his estimated payments for the following year. It's a five-minute exercise that sets up every other tax decision for the next twelve months.

If your effective rate is climbing and you don't know why, that's a planning conversation worth having. Maybe your kids aged out of dependent status. Maybe your itemized deductions are shrinking as you pay down your mortgage. Maybe you had a strong year in a brokerage account and the short-term capital gains caught you off guard, something that happened to me personally a few years back when our options strategy had a big year and I didn't plan for the ordinary income treatment.

The point isn't to avoid tax. It's to understand what's driving your tax bill so you can make better decisions throughout the year, not scramble in April.

Why Is a Roth Conversion One of the Best Tax Strategies Available?

Because it lets you pay taxes once, at today's rate, and never again, on any of the growth.

Definition: Roth conversion is the process of moving money from a traditional IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the amount converted, but all future growth and qualified withdrawals are completely tax-free. There is no dollar limit on conversions.

Garrett said something in our conversation that stuck with me: the Roth is, in his opinion, the single best tax vehicle that exists. Having worked with families on the investment side for over two decades, I've come to the same conclusion.

Most people fixate on the upfront deduction and choose traditional contributions because it feels like they're saving money. But the math often tells a different story. If you contribute to a traditional IRA over thirty years and it grows substantially, you're now sitting on a large balance that the IRS considers untaxed income. When required minimum distributions kick in — currently at age 73 — you're forced to take withdrawals whether you need the money or not. Those distributions drive your adjusted gross income higher, which in turn can increase your Medicare premiums through IRMAA surcharges, phase out other deductions, and create a cascading tax problem you didn't see coming.

Definition: IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge added to Medicare Part B and Part D premiums when your modified adjusted gross income exceeds certain thresholds. Traditional IRA distributions count toward this threshold; Roth distributions do not.

What a lot of people don't realize is that there's no limit on how much you can convert from a traditional IRA to a Roth. The annual contribution limits are restrictive, yes. But if you've already built a large traditional IRA balance, you can roll any amount into a Roth — you'll pay taxes on the conversion, but once the money is in the Roth, it's protected. It grows tax-free. There are no required minimum distributions during your lifetime. And it's far cleaner for estate and legacy planning.

Garrett described his gold standard for a retired client: when he files their return, it looks like they have almost nothing — a little Social Security, maybe a small pension. Their adjusted gross income is low. Their deductions aren't phased out. Their Medicare premiums are manageable. And meanwhile, their actual wealth is sitting in a Roth structure, completely invisible to the IRS. That's the outcome we're planning toward.

"Would you rather be taxed 33% on a hundred thousand dollars or 33% on a million dollars? That's the big question." — Garrett Murphy, Director of Tax Services

What Happens When Your CPA and Financial Advisor Don't Talk to Each Other?

Planning gaps happen, not because either professional is doing a bad job, but because no one is seeing the full picture at the same time. This is the problem I've watched play out for twenty years, and it's the reason we brought tax services in-house at Beck Bode.

Here's how it usually works. You meet with your financial advisor to talk about your investments. Then you meet with your CPA at tax time to file your return. If you want to optimize your situation — say, explore a Roth conversion, restructure your business entity, or understand whether a large capital gain changes your estimated payment schedule — you become the middleman. You relay information from one professional to the other, trying to translate concepts you may not fully understand, across two offices that have no shared visibility into your accounts.

Garrett put it well: at a traditional CPA firm, the information arrives in a pile in February and March. The focus is on filing the return accurately and hitting the deadline. There's rarely time for a holistic conversation about whether your accounts are structured in the most tax-efficient way, whether there's a Roth conversion opportunity this year, or whether a change in your business is about to create a surprise tax bill.

I've been doing this for over twenty years and I can count on one hand the number of times an outside CPA has called me to ask about a client's investment structure. It just doesn't happen. Not because those CPAs aren't competent, many of them are excellent, but because the system doesn't facilitate it.

With Garrett in-house, that changes. If our options strategy generates a significant gain for a group of clients, he can reach out that week and help them plan for the tax impact, before it becomes a surprise in April. That kind of real-time coordination is what our planning process was always designed around. Having tax under the same roof finally closes the loop.

"Now I can focus on the strategy and the opportunities — and a lot less on catching up. That's a lot more exciting than just cranking out returns." — Garrett Murphy, Director of Tax Services

What's the Biggest Mistake People Make With Their 401(k)?

Defaulting into a target date fund and never reviewing what's inside it. This is another decision that shows up on your tax return — whether your contributions are going to Roth or traditional buckets, whether you're maximizing your limits — but rarely gets examined through a tax lens. The biggest issue isn't contribution mistakes. It's what your money is invested in once it's inside the 401(k).

Garrett noted that from the tax side, the main questions are whether you're maximizing your contributions, whether you're diversified between Roth and traditional buckets, and whether self-employed clients have explored structures like an S-corp with a solo 401(k). Those are all valid and worth a conversation.

But on the investment side, the most common problem I see is the target date fund. These are the default investment options in most employer-sponsored plans. They automatically shift your allocation toward bonds as you age, getting more and more conservative each year. The logic sounds reasonable on the surface, but the math doesn't hold up.

Over time, the real return on long-term equities runs about 7% per year versus roughly 3% for bonds. That's not a marginal difference, it's the difference between a retirement that works and one that runs short. And with one spouse in most households now living into their nineties, we're talking about a three- or four-decade retirement. Getting dramatically more conservative at 55 or 60 when you still have thirty-plus years of compounding ahead of you is, in my view, one of the costliest defaults in the retirement system.

If you're in a target date fund and have never reviewed the allocation inside it, that's worth a closer look. We'd welcome that conversation.

What Changed in the 2025 Tax Code That Could Affect My Return?

Two changes under the One Big Beautiful Bill Act are most likely to affect your return: the SALT deduction cap quadrupled from $10,000 to $40,000, and 100% bonus depreciation was restored for qualifying business purchases.

The first is the SALT cap increase. SALT stands for state and local taxes — your state income tax plus your real estate taxes, primarily. Under the 2017 Tax Cuts and Jobs Act, the deduction for SALT was capped at $10,000. The new law raises that cap to $40,000. If you're in a high-tax state like Massachusetts, New York, or California, and you itemize your deductions, this is a meaningful change. As Garrett pointed out, it even affects New Hampshire residents who pay no state income tax but carry above-average property tax bills.

The second is the restoration of 100% bonus depreciation under Section 179. If you're self-employed and made a large capital purchase for your business — a vehicle, equipment, machinery — you may be able to write off the entire cost in one year. Several of our clients took advantage of this in 2025. But the important planning note is that the deduction disappears the following year. If you took a full Section 179 deduction this year, your taxable income next year will look different, and your estimated payments need to reflect that.

We covered both of these changes in more detail in our breakdown of the One Big Beautiful Bill Act and what it means for your retirement.

Start With Your Return

Your return is already filed. The question is whether you'll do what most people do, put it in a drawer and forget about it until next February, or use it as the starting point for every financial decision you make this year.

Calculate your effective tax rate. Look at where your retirement money is parked and ask whether that structure still makes sense. And if you've been the one relaying messages between your CPA and your financial advisor, wondering if something's getting lost in translation — it probably is.

That's a conversation worth having with someone who can see both sides at once. We're here when you're ready.

Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

Frequently Asked Questions

What is an effective tax rate and how do I calculate mine?

Your effective tax rate is the actual percentage of your income paid in taxes, as opposed to your marginal tax bracket. Calculate it by dividing your total tax liability (found on your return) by your adjusted gross income. This number reveals whether your withholdings are calibrated correctly and serves as the baseline for all forward-looking tax planning decisions. It's the first thing a tax advisor should review with you after filing.

What is a Roth conversion and is there a limit on how much I can convert?

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the converted amount in the year of conversion, but all future growth and qualified withdrawals are tax-free. There is no dollar limit on Roth conversions — you can convert any amount from a traditional IRA to a Roth in a single year. The tradeoff is the upfront tax bill, which is why the timing and amount of conversions should be planned strategically with a tax advisor.

Why is a Roth IRA better for retirement than a traditional IRA?

A Roth IRA offers tax-free growth and tax-free qualified withdrawals, while a traditional IRA defers taxes until withdrawal. In retirement, traditional IRA distributions increase your adjusted gross income, which can trigger higher Medicare premiums through IRMAA surcharges, phase out deductions, and create a compounding tax burden. Roth IRAs also have no required minimum distributions during the owner's lifetime, giving you more control over your income and your estate plan.

What is IRMAA and how does it relate to my retirement accounts?

IRMAA stands for Income-Related Monthly Adjustment Amount. It's a surcharge added to your Medicare Part B and Part D premiums when your modified adjusted gross income exceeds certain thresholds. Required minimum distributions from traditional IRAs can push your income above those thresholds, increasing your healthcare costs in retirement. Shifting wealth into a Roth structure reduces your AGI and can help you avoid or minimize IRMAA surcharges.

What is the SALT deduction cap under the One Big Beautiful Bill?

The One Big Beautiful Bill Act increased the state and local tax (SALT) deduction cap from $10,000 to $40,000 for tax years 2025 through 2029. This affects taxpayers who itemize deductions, particularly in high-tax states where income taxes and property taxes are substantial. The increased cap is subject to income phaseouts beginning at $500,000 MAGI, fully phasing out at $600,000.

What is Section 179 bonus depreciation?

Section 179 allows business owners to deduct the full cost of qualifying capital purchases — such as vehicles, equipment, or machinery — in the year of purchase rather than depreciating them over several years. The One Big Beautiful Bill restored 100% bonus depreciation. This can significantly reduce your taxable income in the year of the purchase, but the deduction is not available the following year, which means your tax picture will change and your estimated payments should be adjusted accordingly.

Should I get a large tax refund or owe money at tax time?

Neither extreme is ideal. A large refund typically means you over-withheld throughout the year, effectively giving the government an interest-free loan. Owing a large amount means you under-withheld, which can trigger penalties and create cash flow stress. The goal is to calibrate your withholdings or estimated payments so that your year-end balance is close to zero. Reviewing your effective tax rate after filing is the best way to make this adjustment for the current year.

Why should my tax advisor and financial advisor work together?

Tax decisions and investment decisions are deeply interconnected. A Roth conversion affects your tax bill. A large capital gain in a brokerage account changes your estimated payment schedule. Retirement account structure determines your income in retirement and your Medicare costs. When these professionals operate independently, the client becomes the middleman — relaying information they may not fully understand across two offices with no shared visibility. Having both functions under one roof eliminates that gap and creates opportunities for proactive planning that most traditional CPA firms simply don't have the bandwidth to provide.