You likely have a good grasp of your retirement savings. But have you considered how much you’ll owe in taxes once you retire?
“Understanding your tax liability on savings and investments is crucial for knowing your spending power in retirement,” explains Ryan Tucker, a financial advisor and president of BOSS Retirement Solutions. “This figure is paramount.”
The Tucker Brothers have assisted over 50,000 families in the Wasatch Front with retirement planning, emphasizing that many individuals overlook the taxes they might face during retirement.
“Retirement income typically comes from multiple sources,” Tyson mentions. “It could be from IRAs, 401Ks, Social Security, dividends, and even real estate. Each of these income streams is taxed differently. If you aren’t cautious, you could pay significantly more in taxes than necessary.”
Benefits of Strategic Tax Planning in Retirement
People often think about taxes only during tax season, but that’s usually too late to make a meaningful difference.
“When you submit your taxes, you’re merely reflecting on what’s already happened,” Tyson points out. “To effectively lower your taxes in retirement, you really should adopt proactive tax planning strategies. This can lead to considerable savings over the long haul.”
Interestingly, current tax rates are among the lowest they’ve been in 40 years, thanks in part to tax cuts enacted during the Trump administration. However, their permanence is uncertain.
“Our national debt now exceeds $38 trillion, which many economists view as unsustainable. It’s only a matter of time before taxes have to go up,” Ryan adds. “It’s not an ‘if,’ but a ‘when.'”
The Tucker Brothers actively encourage their clients to explore strategic tax planning options that could yield unexpected savings for retirement.
Taxation on Common Retirement Accounts
If much of your retirement savings is in a traditional IRA or 401K, you’re in good company. However, every dollar taken from these accounts is treated as ordinary income and thus taxable.
“Think of IRAs and 401Ks as debts owed to the IRS,” Ryan warns. “Without a well-thought-out tax strategy for your withdrawals and income, you might end up paying thousands of dollars unnecessarily.”
That’s why the Tuckers suggest converting a portion of those traditional accounts into Roth accounts. By doing this, you can pay taxes now at potentially lower rates and avoid future taxes on that amount.
“Making the switch to a Roth can greatly decrease your lifetime tax burden,” Tyson states. “Plus, Roth accounts don’t have required minimum distributions (RMDs), offering better control for managing taxes in retirement.”
According to the Wall Street Journal, such conversions could extend a retiree’s portfolio by as much as seven years in tax savings.
Understanding Social Security Taxes
Many retirees are surprised to learn how taxed their Social Security benefits can be, with up to 85% subject to tax.
This unexpected income can raise Medicare premiums, increase capital gains taxes, and diminish various deductions.
“To navigate this, it’s best to manage what you can,” Ryan suggests. “That involves being strategic about your income withdrawals.”
By optimizing IRA takings, timing Social Security, and considering Roth conversions, retirees might lower or even eliminate taxes on their benefits.
Commonly Taxed Retirement Income Sources
The reality is most retirement income sources come with their own tax implications that can quietly chip away at your savings. Common taxable income streams include:
Dividends and Investments: Qualified dividends are taxed at capital gains rates, while non-qualified dividends are treated as ordinary income. Increases in tax rates could elevate these costs.
CDs and Money Markets: The interest you earn on these is taxed as ordinary income.
Pensions and Annuities: Although annuities provide consistent income and market protection, qualified annuities are taxed like ordinary income upon withdrawal.
Assess Your Tax Savings Potential
If your savings exceed $300,000, you might need to think carefully about tax implications in your retirement years. Consider a personalized retirement tax analysis to explore your potential savings.
If you’re not a client, there’s no fee for this assessment.
“This is an opportunity to see what you might end up paying in taxes and how much you could save by using strategic planning,” Ryan explains.
“There’s no obligation. It’s up to you. We’ve streamlined this process, and many clients are shocked by how much they can save. We often find potential tax savings in the six-figure range,” Tyson adds.
To request your free customized analysis, reach out at (801) 990-5055 or visit their website.
