03 ~ Investment,finance for businesses

03

 

THREE

You still need to pay income taxes.

In the same way it's easy to assume you no longer need an emergency fund in retirement, it's also a shock to some that you must also pay income tax when you are no longer earning an income. You'll continue to pay taxes at ordinary rates on withdrawals made from tax-deferred accounts, like traditional IRAs or 401(k)s. That means if you rely on traditional IRA and 401(k) withdrawals for a substantial portion of your income, you may still pay a significant tax bill. This is why it's important to incorporate tax planning strategies into your retirement savings plan.

While you can't escape taxes, you can put measures in place to minimize your tax liability and its impact on your standard of living. By converting some of your tax-deferred IRA savings into a tax-advantaged Roth IRA. you can potentially save big in the long run by paying taxes when you're in a lower tax bracket. Figuring out when and how much to convert requires careful analysis, so make sure you work with a tax specialist before completing a Roth conversion.

While the fact that you have to pay taxes in retirement won't change, how you pay them may. When you are an employee, your employer withholds taxes from your paycheck on your behalf. When you file your annual tax return, you compare your withholdings with what you owe and either write a check or get a refund. Throughout your retirement, you should work with your advisor to withhold taxes or plan to make quarterly estimated tax payments. Otherwise, you could find yourself owing the government a hefty sum of cash when tax time rolls around.

 

‘’While the fact that you have to pay taxes in retirement won't change, how you pay them may’’.


Tags

Most Recent

2/recent/post-list

Facebook

Investment,finance for businesses

About