Most people think about 401Ks and retirement plans when they think about retirement, but few people also remember to consider taxes. There are several things you can do, beyond hiring a tax attorney or a tax preparer for tax help, that will ease your transition into retirement when it comes to dealing with the IRS.
- Make sure you think about taxes when you are considering your retirement funds. Many people forget that they have to pay taxes when they begin withdrawing from their 401K, IRA balance or pension fund, and look at the entire sum as available. As an example, if your total retirement fund is $100,000 and you plan to withdraw $3,000 a year with a state and federal tax rate of 30%, you will be withdrawing and using $2,100, after taxes. Speak to a lawyer to figure out your personal tax loss when it comes to retirement.
- Add a Roth IRA and other investments to diversify your retirement assets. This helps manage tax liability and will hedge your money against future tax increases. If you have a Roth IRA, contributions are non tax-deductible but withdrawals are also tax-free.
- You need to pay estimated taxes during retirement, since employers will no longer be taking taxes out of your paychecks automatically. Make sure you regularly consult your tax preparer so you can get used to writing a quarterly check to the government.
- It may not be the smartest idea to take your Social Security during your first year of retirement, even if you wait to retire until you are 66, since those earnings may push you over the limit in your tax bracket and require you to pay more.