Three Unexpected Taxes in Retirement SHP Financial

When we think of major retirement expenses, we often consider housing, healthcare, and that trip of a lifetime we’ve been dreaming about for years. But, we often fail to consider what could potentially be our biggest expense – taxes. Many of your sources of income in retirement are taxable, so don’t overlook these three unexpected taxes in retirement.

Tax on Your Social Security Benefit

Although you’ve paid into Social Security your entire working life, your benefit could be taxed, depending on your income. To figure out if your benefit can be taxed, add up your adjusted gross income, nontaxable interest, and half of your Social Security benefit to get your combined income. If your combined income as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be 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.[1]

RMDs Could Change Your Tax Situation

Starting at age 72, you will most likely be required to take Required Minimum Distributions (RMDs) from your tax-deferred retirement accounts. Distributions from traditional retirement accounts such as IRAs, 401(k)s, 403(b), 457, and Thrift Savings Plans are taxed as ordinary income, so consider how RMDs would impact your tax situation. The amount you must distribute every year is set by the IRS and could be higher than you want to distribute. This could mean an increased tax burden, as well as an end to tax-deferred growth. Age 72 is a birthday milestone that could change your tax situation, so plan ahead for it.

Have You Recently Inherited an IRA or Will You in the Future?

As of 2019, most people who inherit a retirement account from someone other than their spouse must empty the account within 10 years of the original owner’s death. This could mean paying more in tax than you originally anticipated. If you’re planning to pass on a 401(k) or IRA to someone other than your spouse, you should keep this new rule in mind when creating your estate plan. There are tax minimization strategies for those inheriting and passing on retirement accounts.

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 and working with a financial planning professional to integrate tax planning into your overall financial plan. To start exploring tax minimization strategies in retirement, Click HERE to sign up for a complimentary financial review with us at SHP Financial!

[1] https://www.ssa.gov/planners/taxes.html


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.