Avoid This Unpleasant Tax Surprise in Retirement


Filed under: Retirement


32139856If you’ve heard anything about retirement planning, it’s probably the common mantra to save as much as you can. In fact, setting aside as much tax-deferred funds as possible makes sense for your current financial situation as well, because you’re lowering your tax liability while also preparing for the future.

But once you retire, you will begin taking distributions from those retirement accounts, and you will also begin paying taxes on that money. In some cases, especially if you take large distributions from your retirement fund, you might pay more in taxes during retirement than you would have paid during your working years! No one wants to do that, since it nullifies all of the tax savings from earlier years.

So, you might be wondering whether there is any way to avoid overpaying taxes in retirement. Yes, it is possible to do this, but it can be tricky. You should calculate your expected tax bracket in retirement, and compare it to your tax bracket in working years. If it looks like you will jump up a tax bracket once you retire and begin taking distributions from your accounts, you could owe more taxes each year. And if you continue working even though you have claimed your Social Security benefits early, those checks could be taxed as well. Your income-based Medicare premiums might even be higher than you expected.

If this appears to be a likely scenario for you, you could change your savings strategy as your expected retirement date draws closer. Sometimes, setting aside after-tax dollars in a Roth account is a better strategy at this point, because the money is already taxed and then you can enjoy tax-free distributions once you retire.

That’s just one possible solution, of course, Our point is not to revamp your retirement strategy in a single blog, but to point out the importance of regular consultations with a financial advisor as your retirement date approaches. If it looks like you might end up in a higher income tax bracket in retirement, we can work together to shelter your income from excessive taxation. Schedule an appointment with us, and we can analyze your potential taxes in retirement and help you decide what to do.



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This information has been provided by a licensed insurance professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting the insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax, trust and estate, or investment advice. Infinite Wealth Advisors is not an investment advisory firm.  Investment Advisory Services provided by NAMCOA® – Naples Asset Management Company®, LLC, a federally registered investment advisor, website: www.NAMCOA.com .