Now that tax season is over and your return is filed, you may be wondering what you need to review in preparation for next year, especially if you’re approaching retirement.

In this week’s Money Wisdom Question Series, Heath Grossman, CFP® shares a few key considerations when assessing this year’s return and identifying opportunities for future improvement.

Evaluate Your Overall Tax Liability

Start by looking at how much you paid in taxes – not just whether you got a refund or owed this year, but your total tax liability. To determine your effective tax rate, divide your total taxes paid by your total income. This gives you a clearer picture of your overall tax burden.

From this, you can draw a few conclusions: either you’re paying more in taxes than necessary, or you’re paying the right amount. If you are facing a significant tax burden, the next step is to evaluate strategies to reduce it. After all, you want to avoid paying taxes on income you’re not using or spending.

Identify How Your Income Is Taxed

Not all income is taxed the same way. It’s important to differentiate between your various income sources and the taxes owed on each. For example, anywhere from 0% to 85% of your Social Security benefits may be taxable, depending on certain income thresholds. Once you understand how these benefits are taxed, consider whether there are ways to lessen that burden.

Implement Tax-Efficient Strategies

One strategy that may help to reduce your tax obligation is a Roth conversion. This tactic involves transferring money from a traditional IRA or 401(k) into a Roth account. You pay taxes on that money now, allowing it to grow and be withdrawn tax-free in the future. Working with a financial professional can help you determine whether a Roth conversion is right for your unique situation.