Taxes are just a part of life, but you shouldn’t have to pay more than you need to. It’s important to implement tax strategies during retirement planning to help protect what you’ve worked hard to save. Here are a few strategies you can use to help prevent Uncle Sam from spoiling your retirement:
Understand Your Situation
Knowledge is power, and the most important thing you can do to improve your finances is educate yourself. It’s important that you know where you are so you can better understand where you’re going. The first step is to determine your tax bracket from one of the seven brackets outlined by the federal government.1 Knowing your bracket will help you get a sense of how much you can expect to pay in taxes while working versus in retirement. You should also be aware of the tax deductions and tax credits you qualify for and the difference between the two. Another important consideration is keeping an accurate record of your taxes each year.
Determine Your Strategy
One important aspect of determining your strategy is knowing which accounts you have, including 401(k)s, IRAs, pensions, etc. You’ll want to determine which accounts are best for your specific situation. Maybe you want to avoid paying taxes until you have to, or perhaps you can afford to take a little more risk now. Once you know where your money is going, you’ll want to determine the best strategy for eventually withdrawing it, which will have a vast impact on how the money is taxed. You’ll likely spend years growing your accounts tax-free, but once it comes times to withdraw, you’ll notice a significant amount lost to taxes. There are also various penalties you could face for withdrawing too soon. The goal is to minimize the hit your accounts will take by carefully planning the best way to withdraw the money.
Enlist a Financial Professional
The tasks listed above can seem overwhelming, but the good news is you don’t have to go through the process alone. Financial professionals like us are here to be a resource for you. We can help you better understand your current situation and help create a plan to get you where you want to go. We can also help you determine the best tax filing strategy for you and help you discover tax credits and deductions you may not have been aware of. Our job is to help you along your financial journey and answer any questions you may have along the way.
Taxes are a source of stress for many people. However, there are many strategies in place to make the process easier on you. Understand your current financial situation, determine your contribution and withdrawal strategies, and let us help take care of the rest. Remember that financial education is one of your greatest resources, and the more you know, the better chance you’ll have to meet your goals.