You may leave behind a lot of things when you retire, but your tax burden isn’t one of them. In fact, without proper income tax reduction strategies, they can potentially be an even bigger burden in retirement. As tax and financial advisors, we know the keys to avoiding that risk are awareness and planning.
Tax Planning Services for Your Retirement
It’s important to understand how different sources of retirement income are taxed. If your only source of retirement income is Social Security, you probably won’t pay any taxes. That’s because Social Security income – by itself – is tax-exempt. Unfortunately, if you’re like most people, Social Security won’t be enough. You’ll need other sources of income, which means a portion of your Social Security income probably will be taxed. As for how much, it varies, but it can run as high as 85%.
For example, you’ll probably pay that 85% if you get large monthly income payments from a pension. With the pension itself, most are funded with pre-tax income. If that’s the case, it means all your pension income is taxable each year. However, if a portion of your pension was funded with after-tax dollars, then only a portion of the income will be taxed.
For investment income from interest, dividends, or capital gains, naturally, you’ll have to continue paying taxes on that just like you did before you retired. If you have a strategy that involves systematically selling investment shares to generate retirement income, in that case, each sale will also generate a long- or short-term capital gain or loss, which you would need to report on your tax return. In most cases, and for many reasons, this is a bad strategy.
Required Minimum Distributions
Through years of serving as retirement tax advisors, we know the main source of retirement income for most, besides Social Security, is the money they have in their 401(k)s and IRAs. These accounts are tax-deferred until you start taking withdrawals, which the IRS forces you to do starting at age 73 to satisfy your required minimum distributions, or RMDs. Your RMDs are unavoidable even if you have plenty of income from other sources. Through our retirement tax planning services, we can help you implement tax saving and reduction strategies that can help minimize the amount of taxes you pay when the time comes to start taking your RMDs.
If you know of a friend or family member who needs our services, please contact us and we will be happy to help them.
Additionally, final expense coverage allows for you to avoid having to liquidate assets, such as stocks or bonds, at inopportune times, or to simply compartmentalize the costs that will arise, leaving the balance of your assets intact to enjoy or to leave to your heirs.
Final expense coverage offers easy qualification and a streamlined application process. No health examinations are necessary — only a few health questions on a one-page application. Most people get coverage, even with health issues. Family support services may also be available with this coverage.