RETIREMENT TAX PLANNING CAN PROTECT YOUR INVESTMENTS
Taxes may affect your retirement income—and probably different than you might expect.
Tax planning for retirement means looking at your finances—present and future—in a new light. For most of your working life, you’ve probably been in earning and saving mode. Once you retire, that likely switches to spending mode, where the tax implications are completely different. Some of the critical considerations include:
Taxes on Required Minimum Distributions.
How the timing of your Social Security benefits could increase your taxes.
How taxes affect your Medicare benefits.
How the IRS taxes each of your various types of income.
Unexpected post-retirement taxes can catch you off guard with costly fees that cut into your retirement savings. Imagine being taxed on up to 85 percent of your Social Security benefits. That’s currently a real risk, and one you may avoid with effective tax planning for retirement—and don’t wait until you’re retired to make your plan.
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WHY START TAX PLANNING FOR RETIREMENT NOW
You can’t effectively plan for retirement unless you can anticipate your income. And you can’t do that without taking taxes into account.
There’s another reason to begin tax planning for retirement now: Planning ahead can save you money. Savvy retirement tax planning can help you utilize tax-deferred accounts to alleviate tax burdens, and can inform your decision about when to take Social Security benefits and how to build your portfolio.
When including taxes in your retirement plan, we generally recommend that you:
Plan your 401(K) distributions with income and taxes in mind.
Think about converting your IRAs into Roth IRAs. Timely conversions can help to reduce and better manage future taxes.
Figure in the tax implications of Required Minimum Distributions.
Decide how to tap your taxable, tax-deferred, and tax-free assets. Consider which account to tap first, what amounts to withdraw, and when to withdraw them. Taking as little as a thousand dollars from the wrong account at the wrong time could increase your taxes substantially.
Manage your income with an eye toward tax brackets.
Create a net unrealized appreciation (NUA) strategy in order to get the most out of your company stock.
Consider how your income will affect your Medicare and Social Security benefits.
That last suggestion may not seem to be related to taxes, but it is—and we believe it’s an incredibly important consideration. Your income affects your Medicare premiums and determines the rate at which your Social Security benefits will be taxed. Withdrawing money from your assets can raise your income and push you into a higher tax rate, where as much as 85% of your Social Security benefits could be taxed.
LET US HELP YOU WITH TAX PLANNING FOR RETIREMENT
Tax planning can be crucial to your wellbeing in retirement. But unfortunately, when it comes to taxes the best answer for your particular situation may not be the most obvious one.
We’d like to help. At Retirement Planners of America, we specialize in comprehensive retirement planning, which means our process is designed to offer advice based on all the financial considerations you’ll have in retirement.
Download a free guide to help you with retirement planning.
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