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Financial Advisor Tips for Planning for Taxes in Retirement
November 21, 2021 at 10:30 PM
Someone using a computer to explain how to plan for taxes in retirement.

Retirement savings are an essential part of securing a comfortable future, but alongside maximizing your post-work income is the importance of minimizing taxes. Without adequate planning, paying taxes can cause a severe impact on your security and plans for retirement. Developing a comprehensive strategy for your future includes thinking about how to plan for taxes in retirement. At OWLFI, we work with our clients to take advantage of little-known strategies to maximize retirement income while minimizing taxes.

Determine how much of your income is taxable

When you get ready to retire, your income will come from a variety of sources, including:

  • Social security
  • Work pension
  • Investments
  • Other income sources

Not all of these accounts are taxed the same way. By developing a strategy early in your career, you can maximize retirement income using a combination of savings and investment accounts that minimize the taxes you have to pay.

Accounts largely fall into four categories:

  • Tax-deferred: 401(k) and IRA contributions are pre-tax, saving you money on income taxes during the contribution year. Individuals must take required minimum distributions (RMD) starting at age 72.
  • Taxable: traditional bank and brokerage accounts have taxes paid the year they earn profits. Individuals also must pay capital gains taxes when they sell profits. These accounts are exempt from RMDs.
  • Roth: Post-tax money funds these accounts so individuals can withdraw from them without paying taxes on the appreciation.
  • Health savings accounts: HSAs are a way to save money on income taxes in the year they’re earned. HSAs grow tax-free, and withdrawals for approved medical costs aren’t taxed either.

An experienced financial advisor will work with you to develop a retirement plan that considers a plan for paying taxes in retirement, including being prepared for fluctuating tax rates in the future.

Diversify your retirement savings

Your customized retirement plan will include diversifying your retirement accounts. You’ll have access to the income you need after leaving the workforce without being subjected to excessive costs from taxes.

Only an experienced advisor can develop a holistic strategy that considers your projected salary and directs your contributions to maximize the most beneficial accounts first. Whatever your goals for retirement–a financial advisor can help you achieve them without being blindsided by tax bills.

Work with a financial advisor who can offer custom strategies for how to plan for taxes in retirement.

What you’ll owe in taxes after you retire depends on your tax bracket and the different types of retirement income you’ll be drawing. There’s no single way to plan for taxes in retirement. An experienced team of financial advisors will offer a comprehensive understanding of the most beneficial retirement accounts for drawing an income while minimizing taxes.

There’s not much certainty in predicting future tax rates. Having several retirement accounts allows individuals the greatest flexibility in minimizing their tax payments after they leave the workforce.

OWLFI develops holistic retirement plans to help clients with how to plan for taxes in retirement.

We founded OWLFI after noticing the disconnect between CPAs, financial advisors, and estate planning attorneys. Often, miscommunications can cause significant financial and emotional repercussions for clients. Our holistic approach brings a range of advisory services together under one roof to provide unparalleled support for our clients in wealth building, retirement planning, and insurance. We get to know every new client as an individual, including the short and long-term goals for retirement.

Don’t wonder how to plan for taxes in retirement; work with an experienced advisory service that unifies your financial strategies to work in cooperation to achieve your financial goals. Learn more about what OWLFI can do for you, including building tax plans for retirement.