Do You Have Retirement Tax Questions?
Many people preparing for retirement are concerned about understanding
how their retirement savings will be taxed. What will future tax rates
be? What is the value of doing retirement tax planning now – ahead of
retirement – or if retirement has already arrived addressing these questions
sooner than later?
Traditional retirement savings vehicles (e.g., 401(k), 403(b), IRA, etc.) provide for tax deferred contribution and growth. When the time comes to start withdrawing retirement money after age 59 ½ it is taxed as ordinary income. This means retirement income will be taxed at the appropriate (federal – and if applicable, state) marginal tax bracket.
Traditional retirement tax planning strategies advocate tax deferred vehicles with the assumption that future rates will be lower – resulting in a lower tax bill today and in the future. This assumption is typically supported by the idea that retirement income will be lower than current income levels – and therefore taxed at a lower rate. There are two problems with this assumption:
1) Most Americans have the goal of paying off their mortgage by retirement, at the same time, most kids are out of the house too (or too old) – thus eliminating two significant tax deductions, which in many cases results in a higher not lower marginal tax bracket.
2) Most Americans also believe (with good cause) that future marginal tax rates will be higher than they are today.
Given these problems, is a tax deferred retirement approach the best? And is there a way to optimize your tax results? Be sure to get my DVD workshop which explains in much greater detail retirement tax rates and how they affect different retirement tax strategies. The DVD also explains how marginal tax brackets work and how accounting for your current and projected tax bracket can dramatically change your tax liability today – as well as in retirement. Visit this IRS page for more information about current tax rates.
Finally, I recommend working with a retirement tax planning specialist
who takes a holistic long term view (rather than just trying to keep
tax bills to a minimum today) who will also work with your retirement
planning team for the best possible tax – and financial outcome in retirement.
For example, continuing to defer taxes by not taking distributions once
you’re able to withdraw money penalty free may not be the best strategy.
Learn more by getting your copy of my DVD workshop. Make sure you get
the available workbook when you buy - the tax strategies
and tax code references contained in the workbook could make a big difference
in your financial future!
