Financial and Retirement Planning Blog

Taxes in Retirement – What to Expect

You’ve made it to the end, no more daily grind; you’re heading off in the sunset. Whatever metaphor you favor for beginning your golden years, it is an important milestone in your life. Your planning has focused on making certain your nest egg has grown sufficiently to outlast your life, and it’s just as important to be sure your tax obligation doesn’t foil your plans.

Withdrawals from a Traditional IRA or 401(k)

It was great to be able to stash money through these tax-advantaged plans while you were working, but now’s the time to pay the piper. Withdrawals are taxed as ordinary income, which is the highest tax rate. However, now that you are retired you are almost certainly in a lower tax bracket and hopefully your planning accounted for this. Of course, if you opted for a Roth IRA, you paid your tax in the year the money was earned and placed in the qualifying account, you now enjoy the investment returns tax-free.

Income from Pensions

Some retirees are fortunate enough to collect a pension as part of their retirement income. Although some military and disability pensions can be partially or completely tax-free, the average pension income is taxed as ordinary income.

Gains from Investments

If you hold investments outside your IRA or 401(k) accounts, gains are taxable. One way to minimize the tax burden is to ensure your gain is taxed as a long term gain as opposed to a short term gain. This can be accomplished simply by holding the asset at least one year and one day before initiating a sale.

Income from Investments

In addition to earning income from the sale of an investment, you can earn income while retaining an ownership stake in an asset in the form of a dividend from a stock or an interest payment from a bond. Both are typically a taxable event, but favorable options exist. If you invest in a stock that pays a qualified dividend you can be taxed at the much more favorable long term gain tax rate rather than as ordinary income. Municipal bonds are tax-exempt from the feds and if you purchase in-state bonds you pay no state tax either.

Social Security

Many people are surprised and perhaps a bit outraged to learn social security benefits may be taxable, but if you have any other additional income, there is a good chance some of your social security will be taxed. The income threshold where taxes kick in is not very high, and often 50 percent or as high of 85 percent of your social security benefits are subject to taxation.

The old saying that nothing is certain but death and taxes may be true, and including tax planning for your retirement income is an important part of the big picture. Don’t make the mistake of ignoring the inevitable. Proper preparation can provide security and peace in your long awaited post work years. Create a retirement plan that considers every aspect of planning for retirement, including tax strategies, we can help guide you. You deserve nothing less.

Jason Bergey
Pennsylvania Wealth Management
https://pawealthmanagement.com/
(717) 303-1999

Sources: Hyperlinked In Article

Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

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