I believe that when most people think about retirement planning, they focus on how much they’ve saved. But what often gets overlooked is how much of those savings you actually get to keep. Taxes have the potential to quietly take a significant bite out of your retirement income if you don’t plan ahead.
The good news? Whether you’re still working or already retired, there are practical strategies that can help reduce your lifetime tax burden and in return, hopefully enhance the longevity of your savings.
Why Tax Planning Deserves Your Attention
Retirement doesn’t mean the end of taxes, it simply changes how and when you pay them. Income from retirement accounts, Social Security, and investments can all impact your tax bill. A thoughtful tax strategy may be able to help you:
- Keep more of your income
- Avoid unnecessarily jumping into higher tax brackets
- Reduce surprises at tax time
- Preserve wealth for future generations
If You’re Still Planning for Retirement: Building Tax Flexibility
The decisions you make now may have the potential to make a big impact on your retirement savings.
1. Diversify Your Tax Buckets
Balancing contributions between pre-tax, Roth (after-tax), and taxable accounts may give you more control over your income in retirement.
2. Consider Strategic Roth Conversions
Converting some pre-tax savings during lower-income years could allow you to pay taxes now and enjoy tax-free income later.
3. Think Beyond Today’s Tax Rate
It may not always best to defer taxes. If future tax rates, or your income, are going to be higher in retirement, paying some taxes now may save you money long term.
If You’re Retired: Making Your Withdrawals Work Smarter
Once you begin drawing income, I believe that tax efficiency becomes even more important.
1. Plan Your Withdrawal Strategy
Where you take money from each year can impact your tax bill. Coordinating withdrawals across account types may help minimize taxes.
2. Stay Ahead of Required Minimum Distributions (RMDs)
Mandatory withdrawals could increase your taxable income. Planning ahead may help reduce their impact.
3. Watch Key Income Thresholds
Your income level affects more than taxes. It can influence Medicare premiums and how much of your Social Security is taxable.
The Bottom Line
A proactive approach to tax planning may be able to help you keep more of what you’ve earned and create a more predictable, confident retirement.
Call to Action
If you’d like help building a tax-efficient retirement strategy tailored to your situation, we’re here to help. Working alongside your CPA, we are ready to explore opportunities specific to your goals and timeline.
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Disclosure:
The material contained in the newsletter is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. This material is not intended to provide and should not be relied on for tax advice. Any information contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated. Diversification can not assure a profit or guarantee against a loss.Securities Offered Through Valmark Securities, Inc. Member FINRA, SIPC Investment Advisory Services Offered Through Valmark Advisers, Inc. a SEC Registered Investment Advisor. 130 Springside Dr., Akron, Ohio 44333-2431 * 1-800-765-5201 Spearman Financial Services is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc. Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.