by Ronald F. Stevenson, Investment Advisor Representative and Owner, American Financial Investment, LLC. & Barbara Clark Stevenson, Tax Advisor and Owner, American Financial Investment, LLC.
Once you’ve retired, you will no longer have a regular paycheck, and you will likely have to rely on your investments to provide a steady stream of income. It’s important to be mindful of how taxes will come into play, though.
The good news is retirees have a level of control and predictability when it comes to their taxes in retirement – especially if they choose to consult professional help.
For many people, a straightforward approach to planning for taxes in retirement is to consider the withdrawal sequence you are going to take. You could start by taking required minimum distributions from tax-deferred accounts (IRAs, 401(k)s), then withdraw from taxable accounts like brokerage accounts, and move to tax-exempt accounts like Roth IRAs – but it’s important to determine what’s best for your unique situation.
Knowing when you should withdraw from various retirement accounts is crucial to having a good tax strategy, as well as maximizing tax-exempt income, seeing if you qualify for the elderly credit and ensuring that you are taking advantage of the proper deductions and personal exemptions.
Whether it is controlling the amount and timing of your income streams to bring yourself into a lower tax bracket or adjusting your deductions to help ensure you don’t pay more in taxes than necessary, there are strategies that will help you keep more of your dollars rather than giving them to Uncle Sam.
One option that works for many is a Roth IRA. With this type of account, you pay the income taxes upfront on the amount you are converting, or initial investment/principle, and then enjoy years of potential tax-exempt growth, followed by tax-exempt withdrawals on qualified distributions. Ideally, the qualified tax-exempt withdrawals you make in the future will outweigh the upfront tax hit.
At American Financial Investments, LLC, we take a holistic approach to retirement planning, and a major part of that is trying to strategically plan for income and taxation. That is why we are a combined investment, tax planning and tax preparation firm that will review your taxes, prepare a report and help you form a tax strategy that’s right for you and your retirement income.
In the current economic landscape, it is more important than ever to work with a financial professional who can help provide you with the tools you need to help protect and preserve your nest egg – especially when it comes to taxes.
Taxes can be a burden in retirement – but they don’t have to be. Once we’ve ensured you’ve taken all of the deductions and credits you are entitled, we can begin exploring the options and routes that will help you save money on taxes in retirement.
About the authors: Ronald F. Stevenson and Barbara Clark Stevenson own American Financial Investments, LLC, a registered investment advisor in the state of Arizona. They also own American Financial Security, LLC. They specialize in retirement income planning, Social Security maximization, tax exempt income design, personal and corporate tax preparation and planning. American Financial Investments, LLC and American Financial Security, LLC, are not endorsed or affiliated with any government agency. For more information, call (928) 771-8368 or visit AFIprescott.com, 3112 Clearwater Drive, Suite B, Prescott, 86305. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions.