Despite the major changes that retirement is likely to bring, you won’t be able to escape taxes entirely if you have income from a job, a pension, investments, or Social Security. The irony, of course, is that if you owe tax, it means you have a larger income and so may actually be more financially secure.
There are some tax breaks, though, after retirement. When you stop working, you stop paying taxes for Social Security and Medicare. That can add several thousand dollars to your bottom line. If you earn a pension in one state but move to another, you don’t have to pay taxes on the pension income to the state where you earned it. (But you will be a taxpayer in the state where you live.) When you reach 65, you may also qualify for a larger standard deduction when you file your federal tax return.
Most retirement income is taxed, based on the type of income it is. Here’s an overview of federal rules that apply: Annuity income: A portion of each annuity payment is considered a return of principal and is not taxed unless it was purchased with pretax dollars. Earnings are taxed at your regular rate. Capital gains: Profits from the sale of stock, mutual funds, your home, and many other equity investments are taxed at your long-term capital gains rate, provided you have held the investments for the required period. Interest income is taxed at your regular rate. Dividends from qualifying stocks and mutual fund distributions of those dividends are taxed at your long-term capital gains rate. IRA distributions: All earnings in a traditional IRA and any contribution for which you took a tax deduction are taxed at your regular rate when you withdraw the money. Withdrawals of nondeductible contributions you made are not subject to tax. Additionally, income from a Roth IRA is not taxed if you are at least 591⁄2 and your account has been open five years or more. Lump sum distributions from pensions, 401(k)s, and other salary-reduction plans are taxed at your regular rate. Pension annuity income is taxed at your regular rate. Rollovers from pensions, 401(k)s, and other salary reduction plans remain tax- deferred until you make withdrawals.
Contributions from the book Managing Retirement Income in this press release are used with permission from Light Bulb Press
Most people have a predisposition about risk. It’s generally environmental and based on family upbringing. That doesn’t mean it’s necessarily right, it’s just where you are, depending upon your financial literacy. Whether you know it or not, you ...
Released On: 12/27/2019
There are mortality averages based on actuarial statistics that can approximate the life expectancy of the general population at large. But “averages” don’t address half of those who will exceed the norms. The more data you put into determining y ...
Released On: 12/26/2019
For most wage earners and retirees taxes are the biggest expense they’ll ever have over their lifetime. Managing your tax bill effectively is learning to become a “gamer,” by avoiding tax traps and snares along life’s journey. You have to know th ...
Released On: 12/25/2019
It’s rather stunning to discover that most baby boomers have never had a budget in their life, but they’re going to need one in retirement. Retirement may be the biggest motivator for most Americans to create a budget because retirees live month ...
Released On: 12/24/2019
Life just happens, but there are predictable events common to most in our culture and most of those events have a financial impact. Planning for those predictable events can prepare you to meet many of these obligations. The life event checklist ...
Released On: 12/23/2019
The Mortality Revolution may very well be the final frontier in mankind’s quest to beat death. So far, the grim reaper has won every time, but new timelines are emerging in human longevity that are delaying the inevitable. Prepare yourself for l ...
Released On: 12/20/2019
Living longer is exacerbating over a dozen other retirement risks that threaten the vast majority of retirees and those near retirement. If the status quo continues, the retirement lifestyle of most seniors will be severely pared back. Watch the ...
Released On: 12/19/2019
Most of the retirement plans currently operational have a significant flaw. They’ve grossly underestimated the increase in life expectancy over the last generation. But government and military pensions are in the greater financial jeopardy, becau ...
Released On: 12/18/2019
The law of large numbers and changing demographics of life expectancy is having a significant impact on guaranteed lifetime annuities. Annuity manufacturers are touting their alpha with mortality credits and receiving newfound interest among fina ...
Released On: 12/17/2019
The last 100 years have seen a significant increase in human longevity compared to the earliest records of mankind. The spike in longevity has caught the Western world by surprise. The effects of this revolution are affecting financial planning a ...
Released On: 12/16/2019
There was a time when Social Security benefits were not exposed to ordinary income taxation. But over the years, small incremental steps were taken to tax the benefits. Maybe “means testing” may be implemented to shore up the vulnerable Social Se ...
Released On: 12/13/2019
Collateralized loans are not characterized as income and are not reportable, as such, on your 1040 form. And because these loans are not forms of taxable income, they are not counted for the provisional income test for Social Security taxation. W ...
Released On: 12/12/2019
Retirement, as it is today, is inherently crippled by taxes. You may very well have one million dollars in your retirement plan, but Uncle Sam may own up to 40% of it. Health Savings Accounts (HSA) and Roth IRAs need to be reconsidered as a first ...
Released On: 12/11/2019
Most American workers don’t comprehend the realities of retirement until they’re a few years from retirement date, which is often too late. They’re just too busy dealing with immediate financial pressures to understand the long-haul consequences ...
Released On: 12/10/2019
Retirement will undergo a drastic reinvention as the newest generation redefines it's golden years in their investment habits and senior lifestyle goals. https://www.youtube.com/watch?v=RAdtMWBaseY&feature=youtu.be
Released On: 12/9/2019
Your retirement account is only as big as your tax planning strategy. Your personal exemptions and standard deductions in retirement will not be enough to offset your tax bill. Tax management must be a major component of your retirement plan. Wat ...
Released On: 12/6/2019
If you have longevity in your family, guaranteed income for life is a must consideration. If you think it’s reasonable that medical advances will impact your longevity, then guaranteed income for life may need to be in your retirement plan. Watch ...
Released On: 12/5/2019
A happy retirement is based on math and science, not on wishful thinking and hoping things turn out right. You need to eliminate debt and risk in retirement and secure reliable income to generate the peace of mind that seniors desire in their gol ...
Released On: 12/4/2019