Tax Strategies in Retirement

Tax strategies in retirement. While we’re working commonly I hear people when they have their taxes prepared or maybe talk to their Accountant they kind of brag that they got a big refund or oh, I was able to defer this tax or write this off or something like that. So in retirement though, now we’re facing a little bit of a different challenge. Maybe we’ve deferred tax from all these years and now we’re coming to a point where likely we’re going to have to pay this tax or if we pass away, somebody else may have to pay this tax. So when we look at strategies in retirement they’re a little bit different typically than when we’re working. So now you get to, excuse me, now you get to control your income, right? So you finally are a point now where you get to pick what buckets you pull your money from and how much. So that’s one advantage. You can control that. So you can ask yourself at that point, should I be deferring taxation or should I be realizing it in the current year? And you have to just look at tax brackets and look at your tax plan and see what that looks like. And so then also, we have to ask ourselves, future considerations. Not only from stuffs we can’t control, as an example increased taxation, change in rules or regulations. Consider what may happen down the road. Weighing that against what environment we’re in today. As we speak today, traditionally tax rates are fairly low. So for a lot of people realizing taxes in today’s environment may be what is best for them, not everybody. But it may be best in consideration of what it could be. Some things that we can’t control like that with tax rates, another thing is surviving spouses or if you are married today, what would it look like it you weren’t married? So a single tax payer situation and what tax bracket that changes. What about something we can control? One, how much I’m taking or when I’m taking it and what if I have a bigger purchase coming up? Let’s say it’s a vehicle and I really want to pay cash for this, but I’m going to have to take it out of my IRA. Well guess what? Maybe you can spread that over time. Maybe you can take some this year and some next year. So starting to plan for those bigger purchases down the road versus just having that lump sum big expense coming all at once. So tax strategies in retirement oftentimes is not just looking at it year by year. But it’s looking at five, 10, maybe 20 or 30 years down the road to see what total tax obligations are going to be. I can’t stress enough how important it is to have a tax plan in your retirement. If you failed this part and you have a sizeable amount in your pre-tax accounts, you could be paying thousands more unnecessarily.