Are You Paying Too Much in Taxes in Retirement?
You’ve worked hard to build your retirement savings, but have you thought about how much of it you’ll get to keep after taxes? Unfortunately, many retirees pay more in taxes than they expected simply because they didn’t plan ahead. Without a retirement income plan, taxes can eat into your hard-earned savings and disrupt your lifestyle in retirement.
The good news is that with the right strategy and professional guidance, you can take control of when and how much you pay in taxes, rather than letting the government decide for you.
Retirement Isn’t a Tax-Free Zone
Many people assume their tax burden will be less once they stop working, but that’s not always the case. Income from retirement accounts, Social Security, pensions, and other sources can still be taxable. In addition, if you’ve built up a sizable nest egg, your total income might exceed what you earned while you were working, potentially pushing you into a higher tax bracket.
The longer you delay tax planning, the fewer chances you’ll have to minimize your future tax burden. A financial professional can help you understand and navigate your tax situation and the current tax brackets while keeping you on track to meet your retirement goals.
Act Now, Save on Taxes Later
Taking a proactive approach to tax planning can help extend the lifespan of your retirement paycheck. Whether retirement is right around the corner or five years away, there is still time to start implementing tax-efficient strategies into your financial plan.
Once you retire, your financial focus must shift from growing your savings to generating a reliable income stream. How and when you choose to withdraw your money can significantly impact your tax obligation, so it’s crucial to get the timing right.
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Tax-Smart Strategies to Consider
The first step is identifying how each source of income is taxed. Determine which of your accounts hold taxable, tax-free, or tax-deferred funds to better understand how they interact within the context of your overall financial plan. For example, withdrawals from a Roth IRA are tax-free, while withdrawals from a traditional IRA or 401(k) are fully taxable as income.
You may find, in working with a financial professional, that staggering your withdrawals and spreading your tax liability over several years can help minimize the tax bite. If you’re still a few years from retirement, another tax-wise solution could be to use a Roth conversion or direct future savings to a Roth account.
What You Can Do Today
Don’t let taxes derail your retirement dreams. Although we don’t know exactly what the future holds, it’s important to be prepared with a personalized strategy for your unique tax situation. Start your journey to tax efficiency today with our free booklet, Are You Paying Too Much in Taxes in Retirement? This educational guide can be a valuable resource along the way, helping you avoid potential tax traps and offering actionable steps to build tax-smart strategies into your financial plan.
