Considering Taxes In Retirement

Let’s take a minute to discuss the tax bill nobody budgeted for or thought about in retirement. If you have a lot of money held in taxable accounts like traditional 401(k)s or IRAs, you will have to pay ordinary income taxes on that entire amount once you take it out. Not short- or long-term capital gains. Ordinary income taxes at your income tax rate.

And you can’t get around it. You will have to take the money out and pay income taxes on it, or your heirs will. Because the IRS requires RMDs, required minimum distributions, begin annually at age 73. You must be proactive about RMDs, and you must withdraw the right percentage from the right accounts each year. By the way, RMDs aren’t due on Tax Day, they are due by midnight every December 31st.

And your heirs are not exempt. If your kids inherit taxable money in a 401(k) or IRA, they will have to pay income taxes at their income tax rates. And because of the SECURE Act, they’ll have to pay those income taxes within 10 years of inheritance, usually bumping them into much higher tax brackets for all of their earned income as well.

These are just some of the reasons why the Internal Revenue Service should be considered throughout your retirement plan. And at Clear Income Strategies Group, that’s what we do.

We work with tax experts in Charlotte and in the many other cities and states where we have clients. We bring our strategic partners to the table, or we team up with your CPA to strategize your tax obligations in retirement, with the goal of finding ways we may be able to mitigate them.

In addition to working with tax professionals, we have tax software we use to help estimate your taxes in retirement to help us provide you with the future tax planning you need.

We don’t want you to face any tax surprises in retirement; we want to help you plan ahead.

Alongside tax experts and using software, we’ll help you consider RMDs from 401(k)s, IRAs,  similar taxable retirement accounts; pension withdrawals; taxable investments incurring short- and long-term capital gains taxes; wages… even Social Security benefits can be taxed up to 85%!! Tax planning makes all the difference when it comes to the net income you will have for retirement.

Retirees do not have to be tax experts, and we really recommend getting a team of financial and tax specialists to develop your retirement income plan. By looking at your income plan and taxes together, and we’ve had clients reduce their tax liability and have more income as a result. Not everyone will have this result, but many do because there are different ways of taking money out of different accounts that can help optimize your plan. You should at least find out!

Meeting with your CPA because you realize April 15 is coming won’t cut it. You really need to be projecting taxes looking forward throughout your entire retirement. Tax awareness should support retirement decisions, not make retirees afraid to use their accounts.

Let’s develop your personal tax and retirement strategy well BEFORE you retire.