Do you have a withdrawal strategy that optimizes saving on taxes for your retirement? Are you acutely aware of your tax situation in the 8 essential tax years we discuss in this video? You can schedule an appointment with one of our Retirement Experts to look at your situation and help you plan for your future. Call us at (920) 544-0576 or go to
Making retirement tax decisions is difficult. There are a number of factors we have to weigh.
Many retirees enter retirement thinking their tax liability will go down significantly. And this is only partially true…
There will be times in retirement where you’re actually paying a higher tax rate on the income you are taking than you ever did while you were working.
In this video today, we show why and discuss the 8 most important tax years you need to be looking at in your retirement to make better tax decisions.
#RetirementIncomePlanning #WithdrawalStrategy #MinimizeRMDs
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8 ESSENTIAL Tax Years for Optimal Retirement Withdrawal Strategy
As retirement approaches, it becomes increasingly important to plan for your future financial well-being. One crucial aspect of retirement planning is devising an optimal withdrawal strategy for your retirement funds. Managing your withdrawals strategically can help you minimize your tax liability and maximize your savings for a comfortable retirement. To achieve this, it is necessary to understand the importance of certain tax years and plan your withdrawals accordingly. This article explores eight essential tax years that can prove to be critical for your retirement withdrawal strategy.
1. Pre-Retirement: In the years leading up to retirement, it is beneficial to focus on reducing taxable income by maximizing your contributions to tax-advantaged retirement accounts, such as 401(k) or Individual Retirement Accounts (IRA). This helps build a significant amount of tax-deferred savings to draw upon during retirement.
2. Early Retirement: During the initial years of retirement, you may have lower taxable income due to reduced work-related earnings. This period provides an opportunity to withdraw from tax-deferred accounts at a lower tax bracket and potentially benefit from capital gains tax rates on investments outside retirement accounts.
3. Delaying Social Security: If feasible, delaying your Social Security benefits until age 70 can significantly increase your annual benefit amount. This delay provides an extended timeline for tax-efficient drawdown strategies and reduces the risk of being pushed into higher tax brackets.
4. RMD (Required Minimum Distribution): After reaching age 72, you are required to withdraw a specific amount from your tax-deferred retirement accounts each year. These distributions can have a significant impact on your taxable income and potentially raise your tax bracket. Planning for these withdrawals by considering other sources of income can help minimize the tax burden during retirement.
5. Early IRA Conversions: Prior to reaching age 72, it is worth considering Roth IRA conversions. Converting a portion of your traditional IRA to a Roth IRA can provide tax diversification and flexibility in retirement. Withdrawals from Roth IRAs in the future are generally tax-free, allowing you to control your taxable income and potentially reduce taxes owed.
6. Healthcare Expenses: Healthcare expenses tend to rise as you age, and medical costs can be deducted if they exceed a certain threshold. By planning for higher healthcare expenses during particular tax years, you can strategically time withdrawals to cover these expenses and potentially benefit from itemized deductions.
7. Age 72 to 85: Between the RMD age of 72 and age 85, you have the opportunity to manage your taxable income carefully. By keeping your income within specific limits, you can avoid higher tax brackets and optimize the tax treatment of your investments, such as long-term capital gains.
8. Inheritance and Legacy Planning: As you enter the latter stages of retirement, it becomes essential to plan for the distribution of your assets to heirs. Consider the potential tax implications for beneficiaries and explore strategies for transferring wealth with minimal tax consequences. Charitable giving can also offer tax advantages for both you and your heirs.
Designing an optimal withdrawal strategy for retirement requires a comprehensive understanding of tax rules and regulations. Consulting with a financial advisor or tax professional can help you navigate these tax years and create a strategy tailored to your specific needs. By planning strategically, you can make the most of your retirement funds, minimize tax liabilities, and ensure a financially secure future.
I noticed that everything is designed for you to get the short end of the stick the moment you start making any sort of taxable income in retirement. So you either spend a lot of time and energy trying to report no taxable income, or make so much money that taxes don't even matter to you. I want to be in the latter category and play around with taxes savings just for fun.
Question: The challenge for us plebes is how to build (accurately) on of the tax graphs you show. Where's the tool? I try to think in this way, however, know that I'm calculating the right chunks of income correctly is a crap shoot. Any suggestions of how to model this for our own situations so we can accurately make decisions around things like conversions or taking SS?
This is way too difficult to understand. I need it explained as a beginner or someone who doesn’t have a finance degree.
Great as usual. Contacted you about becoming a client.
Cheers,
Jef
Very good, complex but good. Will watch again.
Cheers
This video would have been so much easier to follow if the years and occasional ages were on the charts. Trying to guess by a dotted line that should mean age 65 for Medicare and then trying to understand the related years is very confusing. Are they close in age? Only one chart showed the dates and I don't believe that was the recommendation due to high RMD's. Your video's are usually much more detailed and easier to follow.
#8. If you name your heirs as partial beneficiaries of your traditional IRA, they can spread out distributions over 10-11 years to reduce taxes and surviving spouse faces less of a widow tax penalty due to RMDs. Of course, spouse needs to plan to cover remaining lifetime needs.
Thanks. Seems like Medicare expenses are a lot less sensitive to income than ACA expenses, so hold off on big Roth conversions until on Medicare.
I wish your company would do these sort of tax calculations for a fee, as I don’t want an overall money manager
Thank you so much Eric. BTW, sounds like there is bill in the works to increase SS payroll tax and jack up NIIT from like 3.8% to 16.2%. YIKES!!!!!
Great video as always, Eric! Thanks!
Great info Eric. I often adjust my tax plan based on new information presented on your channel. Thank you!
Thanks Eric–great information as always!