Here’s What You Need to Know About Taxes

For retirees and pre-retirees, a tax strategy is an important component of a retirement plan and should be adjusted based on current tax law. If you are in your working years, you will most likely be focused on maximizing contributions to your retirement plan and decreasing your taxable income. However, once you retire, any decision that you make regarding Social Security, retirement accounts or even charitable gifts could have an impact on your taxes. With our national deficit of nearly $1 trillion and changing political sentiments, it’s likely that there will be tax increases down the line. The next big change to the tax code will happen at the end of 2025, when many of the provisions from the Tax Cuts and Jobs Act relating to individual income taxes will expire. Many might see higher taxes then, which is why it’s important to take action now and note these tax tips:

1. Plan Ahead: You should never wait until April to start thinking about your tax strategy. In order to optimize your retirement income, you should consider your tax burden in every season – not just when tax time rolls around. Having a long-term tax minimization plan can be more effective than searching for last minute deductions on a year-to-year basis.

2. Understand Social Security: Your Social Security income may be taxable, depending on your combined income. If your income as an individual is at least $25,000, or at least $32,000 as a married couple, up to 50% of your Social Security benefit is taxable. And, if your combined income as an individual is over $34,000 or over $44,000 as a married couple filing jointly, up to 85% of your benefit may be taxable. This is why it’s important to understand how your retirement income will be taxed and to create an overall tax minimization strategy.

3. Keep Your Taxable Income Low: By keeping taxable income low, you can save money in the long run. Your withdrawal strategy should take into account how different types of retirement income will affect your tax burden, such as Social Security, traditional and Roth IRA distributions, pension payments, capital gains, and cash. Drawing on tax-free and low-tax income sources can help to reduce your tax burden.

4. Consider a Roth Conversion: It’s important to look at your retirement accounts in order to decide what the most tax efficient plan is for you. For some, it may make sense to convert some or all of your traditional IRA into a Roth IRA in order to have tax-free growth and tax-free income in retirement.

5. Design a Charitable Giving Strategy: If you often donate to charities, keep track of your donations. There may be tax benefits from those gifts that could save you money down the road.

There are other strategies to consider when it comes to tax planning which is why it’s best to get a professional’s opinion as to whether those are right for you. At Brogan Financial, we’ll walk through the plan you have in place and adjust it based on your wants and needs. To learn more, read our complimentary white-papers or schedule your financial review today!