How to Create a Will
Get started with the basics of estate planning by creating a will.
Do you understand how your taxes will change in retirement?
When you started putting money into your retirement account, chances are you were not thinking about the tax implications of your decisions. Whether you have an idea of what to expect from your tax rate in retirement or you’re just starting to figure out your retirement plans, we discuss what you can expect from retirement and taxes below.
In almost every state, retirees in lower-income brackets will find that their ordinary income tax is fairly low – Ohio included. From there, however, state income tax can vary quite a bit. Understanding the basics of what you can expect from the Internal Revenue Service (IRS) and Ohio state income taxes can help you plan for your future.
State income tax varies across the United States. In Ohio, any retirement income included in your federal adjusted gross income (AGI) is considered taxable. That said, if your AGI is under $100,000, then you may qualify for state tax credits.
Ohio offers both a retirement income credit and a lump sum retirement credit. Both will take your retirement benefits, annuities, and distributions into account.
The IRS will calculate whether or not you owe taxes on your Social Security benefits based on your AGI as an individual or married couple. However, regardless of your income, these benefits are exempt from state income tax in Ohio. Additionally, military personnel and some railroad retirement benefits are tax exempt.
Some retirement income, such as distributions from your pension, 401K, or traditional IRA, are subject to standard tax rates. However, there are several ways to lower your AGI, which is where your accountant can assist. The following are just a few of the ways you can potentially limit your tax bill and maximize your retirement income:
If you’re still working, you may also want to prepare your tax-free income sources. For instance, you may want to roll over your 401(k) or traditional IRA into a Roth IRA. You’ll eat the pre-tax funds the tax year you convert but will save yourself future liabilities. Additionally, contributing to a health savings account (HSA) or funding an annuity can set you up for savings down the line.
Of course, these are only a handful of the ways that you can limit your taxable income. Exact recommendations will come down to your retirement plans, whether you’re a married couple that needs to assess multiple streams of income, any long-term capital gains that you have, any exemptions you qualify for, and more.
Because of the complexity involved, it’s best to work with a financial professional. Enlisting a tax accountant will allow you to maximize your income and minimize your taxes in retirement. If you’re looking for a financial advisor in Worthington, OH, consider contacting Royal Oak Financial Group. Our guidance keeps your goals in mind, and we’re here to help every step of the way.