Avoid This Surprise When You Retire

As you prepare for retirement, you’re going to hear and read many different tips and strategies. It can sometimes be difficult to separate fact from fiction, or determine which strategies will benefit you most. That’s why we’re here to help.

But there’s one thing that pretty much everyone recognizes as a good idea: Accumulating as much money as possible never hurt anyone! No one ever says, “gosh, I have too much money in my retirement fund”.

However, there might be one unpleasant surprise in store when you accumulate a sizable retirement fund: Income taxes hit some retirees much harder than they ever expected.

That’s because during your working years, the IRS allows pre-tax contributions to several types of retirement plans. The tax break is terrific, but you will owe taxes on that money when you begin taking distributions in retirement. If you have other investment gains that are taxed, you might find that your income tax burden is much larger than you expected! In particular, this situation often strikes retirees who have moved up a tax bracket, or are generating more income in their later years.

Certainly, the prospect of higher taxes shouldn’t discourage you from establishing a generous stream of income in retirement. But it is something that could surprise you, if you haven’t planned for it. And there’s certainly no need to give away more money to Uncle Sam than you actually have to!

Luckily, we have ways to plan around these situations. Rolling some funds into a Roth IRA, which allows for tax-free withdrawals in retirement, is one such strategy. We also have other ways of sheltering your income from excessive taxation, but it’s imperative that you plan ahead in order to utilize them.

In the years leading up to retirement, remember to meet with us regularly so that we can anticipate all issues regarding your transition. Taxes don’t have to come as a surprise, and we can help you determine the best strategies for dealing with them.

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