Retirement planning and taxes go hand-in-hand. Whether you're retired or not, it's critical that your retirement strategy weighs heavily on your current or future tax burden. Here are three things to consider so you don't disregard taxes in retirement.
Plan for taxes
You know you're going to pay at some point. So, now is the time to decrease your tax bill either in retirement or down the road when you do retire. Understand that the qualified plan distributions, traditional IRAs and 401(k) you have to produce income will be taxed. If you're lucky enough to have a pension; that will be taxed as well as capital gains you incur on your investments. One thing many people forget is that under certain circumstances, Social Security income can be taxed as well.
Make smart tax decisions
When building an income plan, we will strategize how much money should be pulled from taxable accounts to "fill-up" a tax bracket. Or perhaps, we decide to use income from a non-taxable account like a Roth IRA to avoid jumping into the next tax bracket. We want to work with and alongside your CPA. As retirement planners, we provide the tools and vehicles to save, but your tax professional will help us make the most tax-advantageous decisions possible.
Find ways to save on taxes
I've never met someone that loves paying taxes. So, you might as well find ways to save on your tax bill. First, if you haven't retired yet, utilize a Roth IRA. Second, if you have a piece of real estate or a taxable account with sizable gains, you're going to want to time the sale of that investment when you've taken less income and/or are in a lower tax bracket. Third, you can take advantage of municipal bonds. Lately, and one of the biggest ways to save on taxes, is to donate to charity directly from your IRA; it's called a Qualified Charitable Distribution.
Don't disregard taxes when retiring! As retirement planners we can act as the "quarterback" or "project manager". So, not only can we pull your CPA into the conversation, but we can also leverage the input of a lawyer if legal, estate or succession planning questions arise in your situation.
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