Tax Strategy in Retirement

Tax Strategy in
Retirement

If you’ve been regularly contributing to qualified retirement plans like 401(k)s and IRAs, you may have built a sizable nest egg. However, this could come with a significant tax liability, potentially losing 25-30% to taxes. You’re not alone; millions of Baby Boomers have been left wondering what happened and what can be done.

Our Philosophy & Approach to Tax-Efficient Retirement Planning

1. We believe tax reduction is a major consideration in planning for retirement income

It’s not just gross income but net after-tax income that determines how well you live in retirement. We want to reduce your tax obligation so you can keep more of your income to spend on your needs.

2. We look at your lifetime tax obligation, not just your annual tax bill

Your retirement may last for decades. We believe a big-picture, long-term view of your tax situation is necessary to make the best recommendations for your financial future.

3. We encourage you to take action now, before tax rates increase

Tax rates and brackets aren’t static for long. Advance planning can be critical to giving less to Uncle Sam. If a Roth conversion is in your future, you may want to act soon before taxes increase, required minimum distributions begin at age 72, and wealth transfer occurs.

For decades, most retirees have been told they’ll pay taxes on qualified retirement savings once they have left the workforce and are in a lower tax bracket. Instead, contributions and earnings were tax-free for years, meaning retirement income and required minimum distributions will be fully taxable. Recent rule changes also mean non-spouse beneficiaries must pay taxes on inherited tax-deferred plans within 10 years, which can impact higher-earning adult children significantly.

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How We Can Help You Design a Tax-Efficient Strategy for Retirement Income

Fortunately, you don’t have to accept a high tax rate in retirement. Freedom First Retirement Design can help you manage your tax situation effectively, ensuring tax relief on income from qualified plans, Social Security, and pensions while planning for efficient wealth transfer.

Our strategies include spreading out your tax liability over several years and diversifying your savings among tax-deferred, taxable, and tax-free accounts. For many pre-retirees, using a Roth conversion or directing future savings to a Roth account can be a smart move.