You may leave behind a lot of things when you retire, but your tax burden isn\u2019t one of them. In fact, without proper income tax reduction strategies, they can potentially be an even bigger burden in retirement. As tax and financial advisors, we\u2019ve found that the keys to avoiding that problem are awareness and planning.<\/p>\n
First, let\u2019s talk about how different sources of retirement income are taxed, starting with the good news. If your only source of retirement income is Social Security, you probably won\u2019t pay any taxes. That\u2019s because Social Security income \u2013 by itself \u2013 is tax-exempt.<\/p>\n
Now for the bad news. If you\u2019re like most people, Social Security won\u2019t be enough. You\u2019ll need other sources of income, which means a portion of your Social Security income probably will be taxed. As for how much will be taxed, it varies, but it can run as high as 85%.<\/p>\n
For example, you\u2019ll probably pay that 85% if you get large monthly income payments from a pension. With the pension itself, most are funded with pre-tax income. If that\u2019s the case, it means all your pension income is taxable each year. However, if a portion of your pension was funded with after-tax dollars, then only a portion of the income will be taxed.<\/p>\n
For investment income from interest, dividends, or capital gains, you\u2019ll have to continue paying taxes on that just like you did before you retired.<\/p>\n
Now, what if your strategy is to systematically sell investment shares to generate retirement income? In that case, each sale would also generate a long- or short-term capital gain or loss, which you would need to report on your tax return. In most cases, this is a bad strategy.<\/p>\n
In our years of serving as retirement tax advisors, we\u2019ve seen that the main source of retirement income for most, other than Social Security, is the money they have in their 401(k)s and IRAs. Those accounts are tax-deferred until you start taking withdrawals, which the IRS forces you to do starting at age 73 to satisfy your required minimum distributions (RMDs). Your RMDs are unavoidable even if you have plenty of income from other sources.<\/p>\n
Through our retirement tax planning services, we can help you implement tax saving strategies and income tax reduction strategies that can help to minimize the amount of taxes you pay when the time comes to start taking withdrawals from your retirement accounts.<\/p>\n","protected":false},"featured_media":4634,"template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":""},"yoast_head":"\n