Taxes, it’s something we dread paying and yet most people don’t take enough time to develop a great tax strategy. Of course, we all prepare our taxes, but how many of us actually have a proactive tax strategy!
Determine your Secure Income Base
Your secure income base is income you don’t have to manage. Social Security, pensions, you live another 30 days, you get another check! The market doesn’t take this away and you can count on it.
For many people there are different stages to their Secure Income Base during retirement. Maybe initially, they delay Social Security and don’t have any secure income base! Perhaps at 70, they have social security and a pension and their secure income base meets all of their needs.
Determine your Income Gap
If your secure income doesn’t meet all of your needs, you have an income gap. This is the scary part of retirement, filling the income gap with your assets. Do you have enough? Will it last? What happens if the market takes a crash? Should I stop taking out money then? With an income gap you start to feel vulnerable.
It’s important to identify the pattern of your income gap. Do you need income right away before age 70? After 70? Perhaps you don’t have an income gap but after 70.5 you have to take your RMD?
It’s important to determine the pattern of your income gap. When you need it and how much you need! It’s different for everyone and unique to you.
Develop your Income Tax Strategy
Once you know your income gap pattern, we can start to solve the puzzle. For instance, if you have a regular account, qualified account, and roth account, which one should you draw income from and when? You know – there are certainly different tax consequences depending on which account you choose and when!
What about money left over to your surviving spouse? Which type of money should you leave, IRA? Regular? Roth? Most people leave their spouses a big IRA account which is the MOST tax in-efficient. It leaves your spouse having to pay taxes in a Single Tax bracket!
It’s possible that slowly throughout retirement it maybe prudent to move IRA money into either regular or roth accounts(or even Life Insurance) and leave that to your spouse! Tax-wise this maybe the best strategy! (we didn’t even get into what type of money should be left to your estate!)
As you can tell, it’s a big puzzle. However, it is a big puzzle worth solving. Not everyone’s situation is the same, but it’s important to know how you should position yourself to be in the most favorable tax position throughout retirement.
Did you know that we can help you determine if and where your income gap is?
Call Kristen today (704) 919-0149 to learn more about your income gap.