Ironically, the thing that you have the most control over during retirement, is also the thing that could take the biggest bite out of your retirement.
KSL.com discussed this issue in its recent article, “5 retirement tax traps that could needlessly cost you thousands of dollars!” According to the article, you shouldn’t ignore the one thing that could have the greatest impact on your savings and investments: taxes.
Here are some retirement tax traps that could needlessly cost you thousands of dollars.
Social Security. Social security is an important consideration in retirement planning. However, most of us don’t understand that we could pay taxes on up to 85% of our social security benefits. Claiming your social security benefits could trigger new taxes, double your Medicare premiums, and even cause you to forfeit additional benefits that are rightfully yours.
Withdrawing money from your IRA or 401K. Required Minimum Distributions (RMDs) may force you to withdraw money from your IRA, or 401K, even if that’s not what you want to do. The result is paying even more taxes. You need a strategy for withdrawing money from your retirement accounts, so the government doesn’t take more than half of your hard-earned money in taxes, penalties, and fees.
Not leveraging a Roth IRA or life insurance to minimize taxes. A traditional IRA or 401K lets you make tax-free contributions. When you withdraw money from these accounts in retirement, you must pay taxes on this money. A Roth IRA doesn’t allow tax-free contributions, but you pay no taxes when you withdraw money in retirement (and there are no RMDs!). Consequently, you enjoy tax-free growth. Depending on your circumstances, you could benefit from converting your 401K or traditional IRA to a Roth. If you save a portion of your retirement savings in a Roth, you could potentially decrease your tax bill in retirement.
No estate plan. One of the most important things you could do for your family is to have an estate plan. Without one, everything you own could be tied up in the courts. It could also cost your estate thousands of dollars in fees, and your estate could even be double-taxed by the government. Contact us today.
If you are aware of these issues and have the help of a knowledgeable estate planning attorney, there are several legal strategies that you can use to protect your retirement from taxes.
Reference: KSL.com (March 14, 2018) “5 retirement tax traps that could needlessly cost you thousands of dollars!”