A key concern for clients is, of course, taxes, especially for those nearing retirement who have begun focusing on the tax bite that will come out of their precious retirement income.

As a result, financial advisors find themselves spending more time on pre-retirement tax planningto help clients keep more of what they earn during retirement.

The focus of pre-retirement tax planning is making smart tax planning moves well-before retirement. This better positions a portfolio and allows the investor to minimize the adjusted gross income during retirement.

AGI comprises all taxable income with a few modifications, and it is the dollar amount in an investor’s tax return before personal exemptions and itemized deductions. It is important to minimize AGI because it has a direct impact on an investor having a lower tax liability.

Investors can lower their AGI during retirement by creating more tax-free and tax-deferred pools of capital to draw upon. Having multiple pools of capital to draw upon with different tax characteristics will allow the investor the flexibility to draw from each pool at different times in different amounts to better minimize the AGI.

A few tax planning strategies that may help an investor create different pools of capital and reduce future AGI are:

1. Funding a life insurance policy specially designed to generate cash-value build-up. The investor may access the cash value within the policy during retirement via a tax free loan. In addition, the earnings on premiums paid into the policy also grow in a tax-free environment, versus generating taxable earnings to the investor if those premium dollars were outside the policy.

2. Employing smaller, annual pre-retirement Roth individual retirement account conversions now to reduce future larger traditional IRA required minimum distributions. This strategy reduces future taxable RMDs and creates a pool of capital in the Roth IRA that may be accessed on a tax-free/as-needed basis without increasing AGI.

3. Funding a tax-deferred annuity to provide access to future cash flow. These funds grow on a tax-deferred basis. The investor also has flexibility on the timing of beginning distributions or taking a withdrawal to better manage AGI.

4. Deferring Social Security benefits from 62 until 70. Investors can gain eight years of tax deferral, thus reducing AGI, while their benefit is increasing at the same time.

Pre-retirement tax planning is a powerful approach to minimizing an investor’s future AGI. Using these tax planning ideas and others helps the investor keep more of what they earn during retirement.

Roger S. Stinnett is managing director of wealth planning at First Foundation Advisors LLC in Irvine, Calif.

This is part of a 30-30 series on tax planning strategies.