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The Biden administration has already spent $1.9 trillion on COVID relief and has plans to spend trillions more on infrastructure projects, Medicaid expansion, education, and climate investments. In order to fund these projects, the administration has proposed several tax-increasing measures on corporations and individuals. You may think you won’t have to worry as much about your tax burden in retirement, but you could be wrong. You may need to prepare for taxes on your retirement accounts.
How Are Distributions Taxed?
Distributions from traditional retirement accounts such as IRAs, 401(k)s, 403(b), 457, and Thrift Savings plans are taxed as ordinary income. If you plan on getting most of your retirement income from these sources, keep in mind that it can potentially affect your tax burden in retirement. Also, remember that at age 72, you will most likely be required to take minimum withdrawals from your tax-deferred retirement accounts. RMD amounts are set by the IRS and may force you to withdraw more than you normally would in one year. This could mean an increased tax burden.
What About Inherited Retirement Accounts?
The SECURE Act recently eliminated the “stretch IRA,” which allowed IRA beneficiaries to take RMDs based on their life expectancy. This allowed beneficiaries more flexibility when taking distributions and allowed more time for tax-deferred growth. Now, instead of taking RMDs over their own lifetimes, most non-spouse beneficiaries must drain inherited IRAs within 10 years. This could mean missing out on years of tax-deferred growth, plus a potentially higher tax burden for those who inherit large accounts. There are some exceptions: Spouses, disabled individuals, and those less than 10 years younger than the original account owner do not have to drain the account within 10 years.
What Can You Do to Prepare?
Plan for the tax rates of the future, not the present. Rather than waiting to pay more in taxes on your retirement income, you may be able to take steps to help reduce your tax burden for the long term. Tax minimization strategies could include converting part or all of a traditional tax-deferred retirement account to a Roth IRA, working with a financial planning professional when selling property, funding a tax-advantaged annuity, and exploring the tax advantages of leveraging a life insurance policy.
We understand that taxes could be your biggest expense in retirement and want to work with you to help minimize them. Tax and income planning are important parts of your retirement strategy, and these elements need to work together in one comprehensive plan. To start exploring tax minimization strategies in retirement, sign up for a complimentary financial review with us!
The content presented is for informational purposes only and is not intended as offering financial, tax, or legal advice, and should not be considered a solicitation for the purchase or sale of any security. Some of the informational content presented was prepared and provided by Lone Beacon Media, LLC dba Lone Beacon, while other content presented may be from outside sources believed to be providing accurate information. Regardless of source no representations or warranties as to the completeness or accuracy of any information presented is implied. Lone Beacon Media, LLC is not affiliated with the Advisor, Advisor’s RIA, Broker-Dealer, or any state or SEC registered investment advisory firm. Before making any decisions you should consult a tax or legal professional to discuss your personal situation.Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.
The content presented is for informational purposes only and is not intended as offering financial, tax, or legal advice, and should not be considered a solicitation for the purchase or sale of any security. Some of the informational content presented was prepared and provided by tMedia, LLC, while other content presented may be from outside sources believed to be providing accurate information. Regardless of source no representations or warranties as to the completeness or accuracy of any information presented is implied. tMedia, LLC is not affiliated with the Advisor, Advisor’s RIA, Broker-Dealer, or any state or SEC registered investment advisory firm. Before making any decisions you should consult a tax or legal professional to discuss your personal situation.Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.
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