As we plan for retirement, one crucial aspect often overlooked is tax management. While many focus on maximizing their portfolio’s rate of return, understanding and optimizing taxes can significantly impact your financial health in retirement. Joel Johnson, CFP® shares his insights on Retire Wiser with NBC CT.

Joel Johnson, CFP® joins Retire Wiser with NBC Connecticut to share insights into three areas of taxes to be aware of in retirement.

Understanding Taxable Income

First, let’s explore taxable income. This includes earnings from CDs, bonds, and money market funds, categorized as ordinary income. These earnings are taxed at the highest bracket, so it’s essential to identify which of your assets fall into this category and manage them accordingly.

The Importance of Tax-Deferred Accounts

Next, consider tax-deferred accounts like 401(k)s and IRAs. These accounts allow your money to grow without immediate tax implications. The challenge lies in determining the optimal timing and order for withdrawals. While some may delay accessing these funds, it might be wiser to strategically withdraw earlier to optimize tax efficiency.

Leveraging Tax-Free Assets

Finally, tax-free assets, such as stocks held long-term or Roth IRAs, offer significant advantages. These can be transferred to heirs without tax burdens, making them an efficient estate planning tool. Understanding how to shift more funds into Roth IRAs can enhance your financial legacy.