As you transition into retirement, understanding how taxes affect your income can be an important part of your overall financial picture. Tax rules can be complex and subject to change, and the strategies that work best depend on your personal situation. While the approaches below are commonly discussed in retirement planning, it’s important to review them with a qualified professional before making decisions. At Abich Financial, we strive to empower retirees with knowledge and services that optimize their financial wellbeing. Discover the five key tax strategies for retirement that can help you navigate this crucial phase of life.
Taxable income in retirement may come from multiple sources, such as pensions, Social Security benefits, withdrawals from traditional IRAs or 401(k)s, or rental income. Knowing which income streams are taxable and how they interact with each other can help you anticipate your annual tax obligations. Reviewing your income sources regularly with a tax or financial professional may provide clarity as you plan ahead.
Retirees should frequently assess their income sources and consult with a financial advisor to align their tax strategies for retirement effectively. Abich Financial offers tailored advice to help you understand and manage your taxable income better.
Tax-deferred accounts such as traditional IRAs and 401(k)s let you defer taxes on the money you contribute, potentially lowering your tax bill during your working years. Utilizing these accounts strategically during retirement allows your investment to grow tax-free until withdrawal, when you may be in a lower tax bracket.
While enjoying the benefits of tax deferral, keep an eye on Required Minimum Distributions (RMDs) as they can impact your tax bracket, particularly if not planned well. For official guidance on retirement accounts, visit the IRS Retirement Plans page. For additional educational reading, you can also review articles on platforms like Investopedia.
Under current law, the IRS requires individuals to begin taking RMDs from most retirement accounts beginning at age 73 (age requirements have changed in recent years). Failing to take these distributions may result in penalties. Because RMDs count as taxable income, having a strategy for withdrawals may help you manage your overall tax liability. Working with a professional can help you understand how these rules apply to your situation.
Abich Financial can assist by offering personalized strategies for handling RMDs carefully to fit your broader financial goals.
Deciding when to begin Social Security benefits can affect both your benefit amount and your tax situation. While you can start collecting benefits at age 62, delaying benefits until full retirement age or beyond can increase your monthly payout and potentially reduce your overall tax liability.
Consult with a financial advisor to determine the optimal time to start Social Security benefits as part of your comprehensive tax strategies for retirement. Social Security Matters explains the impact of timing on your benefits effectively.
Converting part of a traditional IRA to a Roth IRA may allow for tax-free withdrawals in the future, provided certain conditions are met. However, a conversion is treated as taxable income in the year it occurs, which can affect your tax bracket. Whether this strategy makes sense depends on your current and expected future tax situation. Because Roth conversions are complex, it’s a good idea to consult with a tax professional before proceeding. Abich Financial specialists can help you gauge the pros and cons of Roth conversions targeted to your unique situation
Tax planning in retirement involves many moving parts, and no single strategy is right for everyone. At Abich Financial, we work with clients to review options such as RMD planning, Roth conversion analysis, and Social Security timing within the broader context of their retirement goals. Our role is to provide education and guidance tailored to each client’s circumstances so they can make informed choices.
If you would like to learn more, we invite you to schedule a conversation with our team. Additional resources on retirement and taxes are available through the IRS and the Consumer Financial Protection Bureau.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investments involve risks, including the potential loss of principal. Past performance is not indicative of future results. Please consult with a financial advisor to tailor investment strategies to your individual circumstances.
Investment advisory services offered through Abich Financial Wealth Management, LLC. a Registered Investment Advisor firm. Insurance services are offered through Abich Financial Services Inc.#127820