Tax Planning

No one likes giving over part of their income to Uncle Sam, especially in your golden years. After retirement, any amount you owe the IRS will be deducted from your savings and retirement income. Though you can't avoid paying taxes, you can implement tax planning strategies to minimize or eliminate your tax liability.

A lesser tax burden translates to more money remaining in your account. However, getting there means beginning tax planning in advance. Unexpected taxes in retirement can catch you off guard, leading to huge cuts in your retirement income. You can avoid this through effective tax planning and work towards enjoying tax-free retirement.

But, what is tax planning?

Tax Planning for Retirement

Tax planning is the process of analyzing your financial plans to help reduce the amount of taxes you pay. Primarily, tax planning involves the implementation of tax-efficient plans to minimize tax liability and take advantage of certain tax credits.

Why is tax planning important? One significant advantage of tax planning is that it helps you avoid overpayment of taxes, thus saving you money. Retirement tax strategies can preserve your investment. Tax planning involves a lot of considerations, including the size of the income, the timing of income and purchases, and planning for expenditures.

If you want to plan for retirement effectively, you need to consider the amount of taxes likely to be deducted from your retirement income. However, navigating the tax planning process can be challenging. That's why The IRA Specialists walk with you every step of the way to help you aim to reach your financial goals in retirement.

Work With Us To Minimize Your Taxes Using Several Strategies

Developing a distribution strategy to minimize your taxes is one way of ensuring you save more money. We employ various tax-efficient strategies for saving tax on your retirement income. One of the strategies we employ is Roth IRA conversion. Unlike traditional IRAs, Roth IRAs are funded with your after-tax income during your working years. This means you pay the taxes on the money in your retirement account in advance, leaving you with more income in retirement.

At The IRA Specialists, we help you determine the IRA that suits your needs and to help you grow your assets tax-free. Another strategy of minimizing your tax liability is moving some of your retirement funds into an IRA. Our specialists will advise on the appropriate way of distributing your income throughout retirement.

Frequently Asked Questions (FAQs)

How can retirees save on taxes?

After working so hard to save money for retirement, the last thing you want is a large portion of that money to go to taxes. Some of the ways you can save on taxes are:

  • Convert to a Roth
  • Save in an IRA
  • Understand your tax bracket
  • Diversify your investments
  • Make catch-up contributions to enjoy the tax break
  • Avoid the early withdrawal penalty
  • Don't forget RMDs (Required Minimum Distributions)

Should I use a Roth IRA or Traditional IRA?

To begin with, you should check the IRS requirements on IRA eligibility. Your income will determine if you can contribute to Roth IRAs. If you should qualify for both Roth and Traditional IRA, which one should you use?

To answer this question effectively, you need to understand the difference between a traditional IRA and a Roth IRA. What distinguishes the two is tax breaks. You contribute pre-tax income in a traditional IRA, which lowers your taxable income now. However, withdrawals in retirement are taxable. With a Roth IRA, you contribute money from your post-tax income, making the withdrawals tax-free. If you expect to be in a higher income tax bracket when you retire, you may consider a Roth IRA.

What is a deferred annuity?

A deferred annuity is a contract with an insurance company in which you invest money, then receive repayments for many years after the initial investment has accrued some interest. Deferred annuities work like your 401(k) and IRAs. You can contribute to your deferred annuity with your pre-tax income.

Do I pay taxes on my retirement income?

Your retirement income is taxable. The total amount of your annual income determines how much you pay in taxes after retiring. You pay income tax on your withdrawals from tax-deferred investments like 401(k)s, traditional IRAs, tax-deferred annuities and other retirement plans. You will also pay income tax on your pension. However, if Social Security is the only income you have in retirement, you will probably not pay any taxes because it will be too low to be taxed.

What is a TFRA retirement account?

A Tax-Free Retirement Account (TFRA) is an account that allows you to save for retirement without owing federal or state tax on income earned and when distributing or withdrawing the money. A TFRA Is a long-term investment where you have to allow it to grow for seven to ten years before withdrawing the income.

What are the types of tax planning?

Tax planning types include:

  • Short-range tax planning which is executed at the end of the year
  • Long-term tax planning executed at the beginning of a fiscal year
  • Purposive tax planning- tax planning with a specific objective
  • Permissive tax planning- tax planning according to the law

What are the three basic tax planning strategies?

The main reason for tax planning strategies is to minimize tax rates in retirement. These strategies include withdrawal, and Roth conversion planning as well as income shifting when appropriate.

How is tax planning done?

You should first consider your monthly and annual income to evaluate your taxable income. With this knowledge, you can begin to estimate your tax liability for a given year and look for ways to mitigate it. A tax or financial advisor will offer you their expertise on how you can save on income taxes.

When should you begin tax planning?

Depending on the type of tax planning you choose, you can either do tax planning as the year begins or at the end of a fiscal year. However, a financial advisor will help you determine the appropriate time according to your needs.

At The IRA Specialist, we are happy to help you experience financial confidence and enjoy your golden years with tax-efficient strategies. Contact us today, and let's start tax planning.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.