August 31, 2023
“Anyone may so arrange his affairs that his taxes shall be as low as possible, he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” – Judge Learned Hand – Helvering v. Gregory, 69 F .2d 809, 810-11 (2d Cir.1934)
Believe it or not, that is not an inspirational financial quote, but, in fact, a current U.S. law. What this means is that while taxes are unavoidable, you do not have to pay more than is legally expected. Never is this more true than when you are moving into retirement.
We cannot outrun it, but that does not mean we can’t plan for it! Taxes can eat into your retirement income quickly. It leaves you with less than you thought you would have to live off. A big part of protecting your income and lifestyle from being depleted by taxes is diversifying your income streams. Using taxable, tax-deferred, and tax-free strategies may help.
The majority of pre-retirees will have some level of taxable account. Checking, savings, brokerage accounts, then tax-deferred accounts (401k, IRA, etc), and tax-free accounts (Roth IRA, Roth 401k) are some examples. There is generally an ideal amount for each “bucket” to reduce the overall tax impact on your retirement. You can strategically plan out your taxes in retirement to make sure you keep as much of your hard-earned money as possible. This can be accomplished while still ensuring you pay any taxes due.
With proper planning and guidance from a retirement professional, these methods could help protect much of your retirement income from Uncle Sam and help keep your golden years, golden!
Please feel free to reach out to our office to discuss in detail your questions or concerns about taxes in retirement and how they could affect you. Contact us today to set up your complimentary retirement tax analysis.
We look forward to helping you!