Welcome to our beginner’s guide on retirement tax planning. At Abich Financial, we aim to educate individuals on how to approach retirement with greater financial confidence. Tax considerations are a critical part of retirement planning, and understanding key principles can help you make informed decisions about how to manage your income, assets, and legacy.
While your income may change in retirement, taxes do not disappear. Without thoughtful tax planning, a portion of your retirement income could be lost to tax liabilities, potentially impacting your budget and long-term financial goals.
Federal income tax brackets apply to retirees just as they do to working individuals. Depending on your total taxable income, you may fall into a higher or lower bracket.
Knowing how different types of income are taxed can help you plan more efficiently. For example:
Understanding your total taxable income each year can inform your withdrawal strategy and potentially reduce your tax burden.
Once you reach age 73 (as of 2024), the IRS requires you to begin withdrawing a minimum amount each year from traditional retirement accounts. Failing to take RMDs on time may result in a penalty. Developing a proactive plan for RMDs can help you manage the impact on your overall taxable income.
Many retirees have assets in taxable, tax-deferred, and tax-free accounts. Managing the timing and source of your withdrawals can provide more control over your taxable income.
Roth IRAs and Roth 401(k)s are funded with after-tax dollars, and qualified distributions are tax-free. Including Roth accounts in your retirement portfolio may provide flexibility in managing taxable income. Some retirees may also consider Roth conversions as part of their long-term strategy, depending on their tax situation.
State income taxes vary widely across the U.S., and not all states treat retirement income the same. Some states offer partial or full exemptions for pension or Social Security income, while others may tax retirement income fully. Factoring state tax policy into your planning may help you preserve more of your retirement income.
Estate planning plays a complementary role in retirement tax planning. Tools such as trusts, charitable giving strategies, and annual exclusion gifts may help manage tax implications and preserve wealth across generations.
At Abich Financial, we offer retirement income and tax planning strategies tailored to your individual circumstances. We work collaboratively with clients and, when appropriate, their tax professionals to help build long-term, tax-conscious retirement strategies.
Tax planning is an essential part of creating a well-rounded retirement strategy. From managing income taxes to addressing estate considerations, being proactive can help you make more informed decisions over the long term. With proper guidance, you may be better positioned to preserve your assets and support a more financially secure retirement.
Disclaimer: This blog post 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.