Tax Planning Isn’t Just for the End of Year

While it is common to hear of tax planning as the calendar year comes to a close, and as people begin to prepare for the April 15 filing date, the fact is that your tax strategy should not be dictated by the calendar. In fact, it should be part of your thinking all year long.  


You have spent much of your life in an accumulation phase, during which you were gathering and growing assets to support your retirement. When you reach retirement, this transitions to a distribution phase. Leading up to and during your retirement, your perspective shifts from acquiring and growing your assets to preserving them.


The reality is that taxes follow you into retirement. Money from the retirement accounts that you diligently grew, your Social Security benefits, and all other income from the various accounts established to support your retirement may be taxable. The key to preserving assets, therefore, is to have a comprehensive distribution strategy, which establishes a plan for minimizing your tax liability and maximizing your income while maintaining it for as long as you will need it. 


But what do taxes look like in retirement? Surprisingly, they are not much lower than when you were working. While you are not receiving a paycheck from an employer during retirement, you are still receiving income and likely have fewer deductions that can lower your tax bill. You can, however, minimize your taxes by planning from which sources your income is drawn. Because it is likely that your retirement income is coming from a variety of sources, both taxable and non-taxable, blending your income from an array of sources may lessen your liability. 


While all saving is good, it does matter where you put your money. Many people start different retirement accounts at different points in their life, and oftentimes these accounts have varying tax statuses that may or may not create an effective income stream. Consider that there are four different categories of accounts that extend the full spectrum – from being 100% taxable to 100% income-tax-free. By spreading your assets across all types of accounts, you are better able to maximize your retirement income. 


Regardless of where you are in preparing for or enjoying your retirement, it is important to educate yourself about income and tax liability before and during retirement. A written plan to effectively accumulate, preserve, and distribute your assets in a manner that maximizes your income while minimizing your taxes is an invaluable tool for the process.

  1. Click here and read more about Taxes in Retirement.
  2. Contact Don Ross and the Ross Wealth Advisors’ team to schedule your complimentary consultation to calculate your retirement tax. 

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