Retirement Blog

Taxes and Retirement Planning

February 8, 2024

taxes and retirement planning

As people near or transition into retirement, there can be a drastic change in terms of the sources of their income. Inevitably, that also leads to a new landscape of taxes possibly taken out of withdrawals from retirement accounts or from gains realized by cashing in on investments.

Consider these strategies – some big and some small – when determining ways to approach taxes in your saving and/or retirement years:

When to Start Collecting Social Security

Depending on your financial situation, it is possible that you will not need the Social Security benefits you are entitled to immediately upon reaching full retirement age. If you fit into this box, you can consider delaying your receipt of benefits until age 70. This strategy will allow you to earn credits for additional benefits once you begin collecting while avoiding taxes in the present.

Help Avoid Unnecessary Penalties

If you have retirement funds saved in a 401(k) account, withdrawing money from it too soon will come with a considerable price tag. In addition to normal taxes owed on withdrawals from a 401(k), funds taken out of these accounts before the age of 59 ½ will be subject to an additional 10% early withdrawal penalty. If you are in search of increasing sources of income and have not reached at that age, consulting a financial advisor can help you be sure that you are being savvy with all your saving and planning options.

Where Will the Wind Take You?

Does your retirement plan include moving to that mountain cabin or seaside bungalow you have always dreamed of? Real estate agents will remind you that location is key and that is no different when considering how it can affect your taxable income in retirement. If you move to a new state, withdrawals and distributions will be subject to the tax laws of your new location, regardless of where you lived and worked to build up those accounts. A few miles and an invisible state line could make a huge difference in what your future tax bill could be.

Always Have a Plan

Even if you are feeling confident about your tax situation, economic conditions and trends are continually changing and staying on top of information relevant to you and your financial future is much easier when you are always monitoring to avoid any surprises next tax season. Reach out to our seasoned professionals by scheduling an appointment.