Once you retire, you won’t need to worry about bringing home a paycheck. Unfortunately, you may still have to pay taxes, whether it’s in Security benefits, a pension income, or even your retirement accounts.
If you don’t have a solid tax strategy, taxes could kill a lot of the gains you made through your savings and investments. Luckily, there are a few retirement tax strategies that can help you plan and save money. Let’s take a look at them now.
Lower Your Taxable Income
Contributing to a 401(k) or traditional IRA can be an easy way to lower your taxable income for the current tax year. So, while you are stashing money away for retirement later, you can also reap the benefits of tax-deferred growth.
Another option is to contribute to a Roth IRA or 401(k) if you expect your income will be lower in retirement than it is now. With these Roth accounts, you pay taxes before you contribute, but not when you withdraw the money. While you won’t be able to save money on taxes now, you can once you are retired.
If you have access to an IRA, you can still contribute up until the tax deadline of the current year.
Tax-advantaged accounts offer different tax reduction strategies. However, if you really want to take advantage of these types of retirement accounts, you can use a mix of different accounts that will better meet your tax planning needs.
Some people also contribute to taxable accounts such as brokerage and savings accounts. With these accounts, you are taxed on the interest, dividends, and gains you earn. While they may not be the best vehicle to avoid taxes, they can be an important part of your financial growth.
In addition, there are specific tax-saving strategies for these types of accounts. For example, if you hold investments for multiple years in a brokerage account, you are usually able to pay taxes at a lower rate.
Diversifying between a mix of investments can help you build a nest egg that meets your needs now and in retirement.
Seek Out the Experts
Implementing tax avoidance strategies on your own can be overwhelming to some people. If you want to get started taking advantage of tax strategies while planning for retirement, learning all you can about financial planning can be crucial.
Start by listening to The WealthAbility Show. This can help you learn about tax planning strategies that change the way you build wealth.
In addition, meeting with a financial advisor can help you develop a solid plan and decide on specific steps you should take in retirement planning.
Plan For Required Minimum Distributions
Once you turn 72 (or younger for some types of retirement accounts), you’ll be required to take RMDs and pay taxes on these withdrawals. However, this money could send you into a higher tax bracket.
Since qualified charitable distributions are deductible, you could save money on your taxes by donating. You just need to make sure the money is transferred directly to the organization. If you are interested in this, it’s important to make a plan for it before your 72nd birthday.
Use Tax Strategies to Plan for Retirement
Planning and saving for retirement involves a lot of forward-thinking. However, taxes are an often overlooked aspect of it. By using tax strategies focused on retirement planning, you may be able to save a lot of money now and into retirement.
If this article was helpful to you, make sure to check out our other money articles too.