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Created: January 25, 2025
Modified: January 17, 2025

Don’t Let Taxes Derail Your Financial Plan

A retirement plan that doesn’t consider the impact of taxes can only get you so far. Implementing tax-efficient strategies early on is critical to lowering your lifetime tax liability. After all, the less money you pay in taxes, the more you have to allocate toward your financial goals.

Join Joel Johnson, CFP® on Retire Wiser with NBC Connecticut as he explains how you can avoid letting taxes derail your retirement dreams.

Consider a Roth Conversion

Transferring money from a traditional 401(k) or IRA to a Roth account, known as a Roth conversion, allows you to pay taxes now in exchange for tax-free withdrawals in the future. With taxes likely to rise, a Roth conversion could help you minimize your overall tax burden.

It’s important to carefully time your conversions to avoid moving large amounts of tax-deferred funds at once. To prevent being bumped into a higher tax bracket, consider transferring smaller amounts each year to spread your tax obligations over multiple years.

Time Your Withdrawals Strategically

Timing is everything in retirement planning. You want to develop a withdrawal strategy that ensures you receive enough income without burying yourself in taxes. So, how can you withdraw from your retirement accounts in the most tax-efficient manner?

Consider staggering your withdrawals from your pension, Social Security, 401(k), etc., to help minimize your tax liability. In addition to spreading out your taxes over several years, it may also lessen the burden to diversify your savings among three different tax buckets: tax-deferred, taxable, and tax-free accounts.

Understand How Investment Income is Taxed

Investment income and assets are taxed at different rates, and understanding these distinctions is crucial. For instance, if you sell stocks or mutual fund shares, you may be taxed at capital gains rates. However, if you earn income from bonds, it’s typically taxed as ordinary income.

By managing your taxes effectively, you could potentially increase your after-tax income by 5 to 10%. A tax professional or financial advisor can help you determine how to make your returns on your investments as tax efficient as possible.

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Tax Explorer

Paying taxes is painful – but not nearly as bad as not having the funds to enjoy your retirement. This guide contains 10 strategies that could help minimize taxes on your retirement income.

Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.

Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.

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