Broker Check

November 2019: Being Tax Wise

November 20, 2019


Paying taxes is never fun. But once you stop working taxes can reduce what’s left to spend enjoying your retirement. Fortunately, there are some perfectly legal options that might allow you to put more of your retirement income in your pocket instead of Uncle Sam’s.

Here are some things that might be worth discussing with your tax professional.

Will your taxes really be less in retirement?

Many people expect their taxes will be less once they retire. But this assumption can lead to some nasty surprises. Here are four things that could lead to paying greater taxes than you might expect, once you stop working.

  • 100% of withdrawals from traditional IRAs, 401ks and other tax deferred retirement plans will be subject to income tax.
  • Up to 85% of Social Security retirement income could be subject to income tax.
  • Once a home mortgage is paid off, the tax reducing interest tax deduction is lost.
  • With huge deficits and growing popularity for increased government spending to fund universal health care, free college and environmental programs, tax rates could increase in the future.

Forward vs. Backward Facing Planning

Many people only take a backward-facing view of their taxes. As the April tax filing date approaches, they gather up their income statements and deductible expenses, take them to their tax preparer and hope for the best.

A smarter approach might be to take a more forward-facing view of taxes. Especially when it comes to planning for retirement. This requires giving some thought to what your sources of income will be once you stop working. This can be important because different sources of income can result in a much different tax bill.

Building future sources of income from financial instruments that qualify for reduced tax rates or where you might pay no taxes at all, could save you considerable money.

Tax diversification

Many people use traditional IRAs and 401(k) plans to accumulate most, if not all their retirement funds. These accounts are popular because they can allow you to defer paying taxes on a portion of your income for decades.

The problems this can create might only become apparent after you are retired, and it is time to start taking withdrawals from these accounts. Now 100% of this income will be subject to income tax. Not only that, for some people income from these sources could also cause a higher percentage of their Social Security to be subject to income tax.

Building additional sources of income using accounts that are taxed differently can allow you to become better tax diversified. These sources can provide you with more options when it comes to deciding from which accounts you take withdrawals to fund your retirement.

The time of your life

Retirement can be the time of your life, but it will take money. One of the biggest mistakes people make is to not consider the impact that taxes can have on their future income.

Sure, you’ll need income to live the retirement you dream of, but the key is spendable income. How much of that income will be left after you pay taxes?

Something important is about to happen

Few things will be more important than your future retirement. And the way time flies, it will happen before you know it. We can help you plan for the inevitable.

I’ll teach you what you need to know about the cornerstones of building a secure and enjoyable retirement.

  • Maximizing Social Security
  • A Tax Wise Retirement
  • Implementing Guaranteed Lifetime Income streams
  • Legacy Creation

Retirement could mean decades without a paycheck. Will you be prepared? How much will you need to save? Could taxes, inflation, rising health care expenses derail your plans for a secure and enjoyable retirement? Our personalized retirement analysis can help you get answers to these and other important retirement questions while you still have time to address the challenges.

Call today for your free personalized retirement analysis. (916) 480-0669


Gary Pevey, CLU ChFC