Taxes in Retirement
October 6, 2022
Halloween is on the horizon and this month we are focusing on the “spooky” side of retirement and why it doesn’t have to scare you, starting with taxes.
Taxes are a subject that no one likes to discuss, but the good news is if you plan properly, you can worry less about losing more of your savings than you have to. Here are a few tips that could help you better prepare for taxes in retirement:
Consider Roth IRA Conversions
“These retirement savings vehicles let you invest pre-tax dollars and, hopefully, enjoy tax-deferred growth over time. The trade-off, though, is that taxes will be due when you start withdrawing that money to fund your retirement.”1
Delay 401(k) Withdrawals if You Are Still Working
“If you remain employed into your 70s or later and don’t own 5% or more of the company sponsoring the retirement plan, some 401(k) plans will allow you to delay withdrawals from your current 401(k) account until you actually retire.”2
Explore Charitable Giving Options
“A qualified charitable distribution (QCD) can be used to make charitable gifts using funds from a traditional or, in some cases, a Roth IRA. QCDs will not increase your adjusted gross income. When you withdraw funds from an IRA and then give them to charity yourself, the withdrawal is taxed as income and your adjusted gross income increases.”1
Consider Making Catch-Up Contributions
“Workers age 50 and older are eligible for an additional tax break if they make catch-up contributions to their retirement accounts. IRAs also allow catch-up contributions for those age 50 and older of up to $1,000 in 2022.”2
Don’t Forget About Required Minimum Distributions
“Withdrawals from IRAs and most 401(k)s become required after age 72. The penalty for failing to withdraw the correct amount is a stiff 50% of the amount that should have been distributed, in addition to the income tax due.”2
We understand that making important tax decisions can be overwhelming, which is why we are here to help. If you have questions or would like to get started with a tailored tax plan, contact us today! We look forward to helping you!