Top 5 Financial Planning Concerns for Retirees-(3) Tax Issues in Retirement are Different—and Can be Confusing!
Top 5 Financial Planning Concerns for Retirees-(3) Tax Issues in Retirement are Different—and Can be Confusing!
Continuing our series on the top concerns of retirees for both financial and non-financial issues, here is the second Financial Planning concern.
(2) Tax Issues in Retirement: Strap In, This Could Be A Bumpy Ride!
Another fun “surprise” for many Retirees are various income tax issues that were not on their radar during their working years. Among these are:
1. The need to ensure that you either have sufficient tax withholding from whatever income sources you have or make quarterly estimated tax payments instead;
2.The benefits of looking at what I refer to as “tax smoothing” where you may choose to start drawing from your pre-tax retirement accounts earlier than needed for Required Minimum Distributions (RMDs) to reduce future tax bills and increase your monthly cash flow;
3. Speaking of RMDs, the starting age for those is now 73, or more technically, April 1st of the year following the year you turn 73. You may recall this used to be 70 ½ for many years, then was briefly age 72. For those of us born in 1960 or later, the RMD age is now 75. But, as mentioned earlier, the starting age is just when withdrawals are required to come from pre-tax retirement accounts. You always have the option of taking funds out earlier, and as long as you are over age 59 ½, there is no penalty for doing so, just a tax bill;
4. Also on the RMD topic, failure to take the required funds out will, or at least could, result in a substantial penalty, so don’t miss that deadline. Even better, take your first RMD withdrawal during the year you turn 73 and don’t wait until the next year as you will then have to take two distributions that year; and
5. One more tax “trap” as I call it is not being aware of the interaction between your income levels and the Medicare IRMAA premium adjustments that catch many folks by surprise a couple of years after they earned that income.
There are a lot more tax-related fun things for retirees which is why you would benefit from a consultation with a financial advisor who specializes in working with retired clients using a tax-focused and holistic planning approach. Learn more about us by visiting our website at www.SafeHarbor.financial where you will find information about our cash flow approach to retirement planning, the value of using a Retirement Success Advocate, and a list of our standard projects and fees. Or you can call Safe Harbor at 302-313-6644 or email us at info@safeharborfinancialadvisors.com for an initial no-cost, no-obligation assessment meeting.
Stay tuned for the rest of the Top 5 Financial Planning Concerns for Retirees in future posts, as well as the Top 5 Non-Financial Planning Concerns for Retirees.
