Retirement Planning: Tax Considerations

Edward Goldstein |

Retirement planning is a crucial aspect of financial management that involves understanding and preparing for life after retirement.  It includes considering various factors such as income, expenses, investments, taxes, and healthcare.  Retirement tax planning aims to achieve financial independence and security during your golden years.  Here are some key points to consider:

Impact of Taxes and Tax Liabilities

Your tax liabilities in retirement depend on the types of accounts you have, where you live, and how much you will need to withdraw each year. 

  • Tax-deferred retirement accounts: Your contributions to traditional IRAs and 401(k)s are made with pre-tax dollars, which lowers your taxable income now.  However, your retirement withdrawals are taxed as ordinary income, along with other sources, such as Pensions that will impact the level of Social Security taxability, how much you pay for Medicare Premium, your Income Tax Bracket, and potentially losing eligibility for available Federal and State benefits.
  • Roth accounts: Both Roth IRAs and 401(k) contributions are with after-tax dollars.  While there’s no immediate tax benefit, withdrawals in retirement, including earnings, are tax-free.  Even Estate Tax planning benefits create tax-planning “pay taxes now or later” decisions.
  • Individual and Joint Investment and Savings Accounts: These accounts have different tax rules, creating opportunities when managed with your retirement accounts.

Withdrawal Strategies

  • Required Minimum Distributions (RMDs): While recent tax law changes increased the age for starting RMDs from 72 to 73 beginning in 2023, waiting to that age may not make the most tax sense for the above reasons, creating a need for pre-retirement planning.
  • Early withdrawals: Taking money out of a retirement account before age 59½ can result in a 10% early withdrawal penalty in addition to regular income taxes.
  • ROTH Conversion: You may be eligible to convert your retirement accounts to a ROTH, providing significant previously mentioned strategic benefits.

Role of a Financial Planner

Retirement planning is about saving money and making strategic decisions that can have significant tax implications.  This is where seeking professional advice from professionals like Financial Life Planning who can provide personalized guidance based on your specific needs and goals.  Remember, the path to a secure retirement begins with a plan!

Contact Financial Life Planning using the “Click for a Free Consultation” button today for advice tailored to your unique situation.

Edward C. Goldstein, CFP®, MBA, President
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
Fax: 908-292-1040