What Are Your Rights as a Taxpayer in Worthington, OH?
Get a better understanding of your rights as a federal and state taxpayer.
Take advantage of these five tips for tax planning in retirement!
As you enter or near retirement, you’ll soon realize your tax liability can change significantly from when you were employed. To that end, it’s imperative to get a better handle on your tax situation and try to minimize your tax bills as much as possible while you still can. If you’re looking for ways to cut down your taxes during retirement, take a look at five tax planning in retirement tips below.
Retirement indeed comes with its own set of financial advantages. However, tax planning doesn’t go away once you officially retire. In fact, there’s a lot you can do to minimize how much you owe. The following tips offer a few ways to help you save substantially during these years.
One of the easiest ways to keep your retirement taxes in Worthington, OH low is to reduce your monthly expenses. This way, you won’t have to worry about withdrawing as many funds from your retirement accounts, and it will be much easier to stay in a lower tax bracket. Start by budgeting your expenses and keeping a bare minimum set aside for discretionary spending. You also may want to see what you can do to cut down on living expenses, such as downsizing to a smaller house and reducing your insurance premiums, if possible.
If you’ve always wanted to move to another state, an additional tax benefit may drive your decision even more. Currently, seven states, including Florida and Texas, have no income taxes. Other states’ residents benefit from low-income taxes and special tax breaks for their retirement income, including:
Federal law also prohibits states from taxing retirement benefits their residents earned in another state. Therefore, if you previously received a pension in a high-taxed state, such as New York, and moved to a tax-free place, you won’t be required to pay state tax on this retirement income.
As a retiree, your income can (and should) stem from multiple sources. Pensions, social security, taxable brokerage accounts, bonds, and tax-free Roth Accounts are all popular income sources that are taxed differently. Generally speaking, your retirement savings accounts fall into one of these three tax categories:
The withdrawals you make from each of these retirement accounts can also have a huge impact on how high or low your tax bills become. Withdrawals you make from a 401(k) account or a Traditional IRA will be counted as taxable income for that given year. On the other hand, withdrawals from a Roth IRA or Roth 401(k) don’t require you to pay income tax. Giving yourself a mix of different options makes it much easier to take control of your taxes, save money, and strategically control the percentage of your withdrawals coming from each account.
If you can, try postponing your withdrawals from your IRAs and other tax-deferred accounts as long as possible, or until you reach 72, and are responsible for paying RMDs to avoid a tax penalty. It’s usually best to let the money sit in these accounts and grow on a tax-deferred basis until you need them.
Even after you hit 72, however, there are still a couple of ways to avoid RMDs. One frequently used technique is to have your funds transferred into an IRS-approved public charity. However, this tax strategy comes with an annual limit of $100,000. If you’re married, your spouse also has their own $100,000 annual limit. This option is also only available for IRAs. Any non-IRA or like-IRA accounts, including Simplified Employee Pensions, cannot be considered.
Above all, it pays to have a tax plan in place as you head into your retirement planning years. A tax planning professional in Worthington, OH can help you identify and meet your goals and customize a plan to maximize retirement income and lower your taxes.
At Royal Oak Financial Group, our financial advisors are here to help you build a financial future you can count on for the years to come. If you’re looking for tax professionals to help minimize your expenses, get in touch with us today!