5 Financial Planning Tips for RetirementDavid Macino
As if there weren’t enough plans you have to make for retirement, don’t forget to account for tax payments. Even seasoned retirement advisors can forget about tax liability – exposing themselves to financial risks and hardships during what should be the golden years. As a retiree or someone close to retiring, use these financial planning tips to stay financially secure leading up to retirement and far into the future.
Accurately Estimate Tax Payments
Whether you plan on living off of a pension, Social Security benefits, individual retirement accounts, or some other source of income, you need to look at the big picture. Every form of income you use to replace your regular paycheck will come with certain liabilities. Look at the tax bracket in which you will fall when you retire to calculate an accurate estimate of what you’ll need to pay the IRS. Keep up with the latest tax brackets according to the new federal tax bill.
Take Advantage of Deductions and Exemptions
Some portions of retirement income are tax exempt. Senior tax breaks exist on medical and dental expenses, home sales, retirement account contributions, investment expenses, and business expenses. Work with a financial planner to take full advantage of all tax deductions and exemptions you could qualify for in retirement, to minimize your tax liability.
Rollover to a Traditional IRA
A major mistake retirees tend to make is to leave the 401(k) behind. Instead of cashing it out, roll over some or all of the money in your 401(k) to a traditional IRA to preserve your tax deferral. Rolling over your 401(k) using a direct transfer (not a check, as this makes your employer withhold 20% of the balance for taxes) means keeping your tax deferral in-tact, without an early withdrawal penalty if you’re under the age threshold.
Defer Distributions for Retirement Plans
By deferring distributions for a retirement plan as long as possible, you can allocate additional income for upcoming tax years instead of paying all at once. This might be a good idea if you think you’ll end up in a lower tax bracket in the future. You must start withdrawing from IRA plans and 401(k)s when you reach the age of 70 ½. IRS Publication 590 outlines the minimum amount of distributions required.
Continue Funding Retirement Accounts
If possible, don’t stop funding your retirement accounts when you stop working. Continuing to add money to these accounts lowers your taxable income and positively affects your tax bracket. There is no age limit on Roth IRA contributions, meaning you can continue to fund them indefinitely for lower taxes on income.
For more retirement tax tips, seek help from the experts at Macino Financial Services. Call 419.491.0909 today to schedule your free retirement assessment.
Investment advisory services are offered through Virtue Capital Management, an SEC Registered Investment Advisor. Macino Financial and VCM are independent of each other. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. Information on this website does not involve the rendering of personalized investment advice but is limited to the dissemination of general information on products and services. A professional adviser should be consulted before implementing any of the options presented.
Information provided is not intended as tax or legal advice and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional. David Macino and/or Macino Financial Services are not affiliated with or endorsed by the Social Security Administration or any other government agency.