In retirement, it’s not about receiving as much income as possible. During your working years, it might be, but when you’re the one paying yourself, it’s important not to turn your hard-earned savings into a large pile of income that’s taxed at a higher tax bracket. It is important to strike a balance between maximizing your income and minimizing your tax burden. Here are a few tips for achieving this balance.
Traditional IRAs and 401(k)s are taxed at your income level. When it comes to providing yourself with income from these sources, remember that you owe taxes on whatever you withdraw! Planning out your withdrawals to provide you with only what you need each year can help minimize your tax burden while maintaining your lifestyle.
Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars, meaning you already pay taxes in the year you make contributions, not when you withdraw. Qualified withdrawals from a Roth IRA are tax-free, so by funding Roth IRAs during your working years, you can reduce your tax burden and increase your income later.
In retirement, you’ll likely have other sources of income and may have the ability to control the amount of taxable income you receive. For example, you could choose to take Social Security benefits later to receive a larger monthly benefit (and potentially pay a lower tax rate on those benefits). You could also consider taking income from taxable accounts before tax-deferred accounts, as the latter may be taxed at a higher rate in retirement.
In addition, there are several tax credits and deductions available to seniors, including the credit for the elderly or the disabled and the medical expense deduction. By taking advantage of these credits and deductions, you can reduce your overall tax burden.
Overall, striking a balance between income and tax in retirement requires careful planning and consideration of the various options available to you. By understanding your income needs, tax liability, and the various retirement accounts and credits available, you can develop a strategy that allows you to protect the longevity of your retirement savings while providing yourself with the income you need.
A financial professional can help you develop a retirement strategy that considers your income needs and tax liability. They can also help you navigate the complex rules surrounding retirement accounts and taxes, ensuring that you are making the most of your retirement savings. Contact us at (540) 720-5656 to get started with a financial professional.
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Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.