What to Know About Taxes in Retirement
From: money.usnews.com
Sometimes conventional wisdom isn’t necessarily wise. For years, many pre-retirees were counseled to expect living expenses of around 70 to 80 percent of their current outlays.
In the past decade, financial planners have keyed in on several places where retirees spend more than previously believed. Many baby boomers are healthy and energetic at retirement and are ready to take on travel or new hobbies, which can be costly.
There are also less-enjoyable ways to spend money. People with income from jobs or self-employment are aware that taxes take a bite out of take-home pay.
However, taxes also affect retirement income. A growing number of financial professionals are advising clients how to prepare for potentially significant tax hits, even after retirement.
“Retirement should be considered simply the next chapter in an individual’s tax planning, and it’s an incredibly important one,” says Lance Christensen, partner and certified public accountant with business advisory firm Margolin, Winer & Evens in Garden City, New York.
“With retirement planning, there is often more certainty: You’re not pulling in a salary, and your investments are often allocated more to the fixed-income category. Your tax strategy should be structured to help time your taxable income so you’re reducing the post-retirement tax hit over as long a period as possible,” Christensen says.
Here are some ways retirees can mitigate their tax burdens.
Strategize your IRA withdrawals. At age 70 1/2, investors must begin taking required minimum distributions from their individual retirement accounts. These withdrawals are considered taxable income. If the account value is high, withdrawals can be significant, resulting in a greater-than-expected tax hit.
