Jamie Ann Hayes, QPFC, C(k)P, AIF(r)

Jamie Ann Hayes, QPFC, C(k)P, AIF(r), Partner and Consultant of FiduciaryFirst, specializes in Employer Retirement Plan Fiduciary Services and Corporate Pension Consulting.

Three Tax Tips That Can Help As You Approach or Begin Retirement

Retirement is a whole new phase of life. You’ll experience many new things, and you’ll leave other things behind. One thing that won’t disappear, however, are taxes. If you’ve followed the advice of retirement plan consultants, you’re probably saving in tax-advantaged retirement accounts, like 401(k)s or IRAs. These types of accounts defer taxes until withdrawal, and you’ll probably be withdrawing funds from them in retirement. Also, you may have to pay taxes on other types of income, like Social Security, pension payments, or salary from a part-time job. With that in mind, it makes sense for you to develop a retirement income strategy. Here are three tips:

Consider when to start taking Social Security. The longer you wait to start taking your benefits (up to age 70), the greater your benefits will be. Remember, though, that currently up to 85 percent of your Social Security income is considered taxable if your income is over $34,000 each year.

Be cognizant of what tax bracket you fall into. You may be in a lower tax bracket in retirement, so you’ll want to monitor your income levels (Social Security, pensions, annuity payments) and any withdrawals to make sure you don’t take out so much that you get bumped into a higher bracket.

Think about your withdrawal sequence. Generally speaking, you should take withdrawals in the following order:

  1. Required minimum distributions (RMDs) from retirement accounts. You’re required to take these, so start here first. Taxable accounts. You should use these up, since you’re paying taxes on them.
  2. Remember, if you sell investments, you’ll need to pay taxes on any capital gains.
  3. Tax-deferred retirement accounts like IRAs, 401(k)s, or 403(b)s. You’ll pay income tax on withdrawals, but do this before touching Roth accounts.
  4. Tax-exempt retirement accounts like Roth IRAs or 401(k)s. Saving Roth accounts for last makes sense. You can take withdrawals without tax penalties, for example for a large medical bill. You can also use them for estate planning, since your heirs won’t pay any taxes on their distributions, either.

All these factors are complex, and you may want to consult a tax professional to help you apply these tips to your own financial situation. You can test different strategies and see which ones can help you minimize the taxes you’ll pay on your savings and benefits. The Participant EffectSM is a program that serves similarly to a retirement plan consultant. We educate participants about retirement options and how much they should be saving through our program that offers your employees appropriate strategies to help them work toward their retirement goals. For more information, contact us at 1-888-968-9168.

Tracking Number: 1-598556

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Retirement Plan Consulting Program and other advisory services offered through LPL Financial, a registered investment advisor. This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

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