Cortburg Speaks Retirement

Retirement Taxes Explained: How to Pay Less and Keep More of Your Savings!

• Miguel Gonzalez, MBA, AIF®, CPFA®, CRC® • Season 2024 • Episode 228

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Understanding how your retirement income is taxed can help you avoid costly surprises and keep more of your hard-earned money. In this episode, Certified Retirement Counselor (CRC) Miguel Gonzalez breaks down tax strategies for 401(k)s, IRAs, Roth accounts, and Social Security.

Cortburg Retirement Advisors is a boutique financial planning firm committed to helping you grow, protect, and preserve your assets from your first job to retirement. We specialize in wealth management, estate and tax planning, group retirement, employee benefits, insurance, and retirement planning to navigate any economic climate.

Miguel Gonzalez, a Retirement Specialist with 20+ years of experience, offers expertise in retirement income planning, investment management, and retirement plan design. With an MBA from Columbia Business School, and professional experience with JP Morgan Chase, Merrill Lynch, and more, Miguel is a trusted advisor for his clients.


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Welcome to Cortburg Speaks Retirement

An audio podcast about investing in the stock market, financial planning, money management and retirement planning.  Each Wednesday, we help investors at all stages of life learn how to potentially grow and preserve their money from first job through retirement.

Now here is your host, Miguel Gonzalez.

 Good morning and welcome to the CORTBURG SPEAKS RETIREMENT audio podcast.   

Retirement planning is not just about saving money — it’s about surviving on the money you saved and may receive in retirement, such as Social Security benefits. 

Tax considerations are easy to overlook when establishing a retirement plan, and various forms of retirement income are taxed differently. Knowing these details might help you save more money without being surprised by taxes. 

Knowing the tax rates for each retirement account is essential to plan appropriately. Here are some details about popular account types:

Traditional 401(k) and Individual Retirement Account (IRA)

● Contributions are deductible before your current taxes, meaning they lower your taxes now before retirement.

● Pension distributions in retirement are taxed as ordinary income.

● Required minimum distributions (RMDs) start at age 73, and you must begin withdrawing money annually even if you don’t use it, potentially putting you in a higher tax bracket.

Tip: Consider how much you currently pay in taxes and how much you plan to earn when you retire. Contribute to a traditional IRA or 401(k) if you predict being in a lower tax bracket in the future.

Roth 401(k) and Roth IRA

● Contributions are made with money after you pay taxes, so these accounts don’t impact your regular taxable income before retirement.

● Withdrawals in retirement are not taxed, provided you have had the account for at least five years and are over 59 and a half.

● Roth IRAs don’t have RMDs, so you have more flexibility about taking withdrawals when it comes to retirement.

Tip: Roth accounts are helpful if you anticipate being at the higher end of the tax spectrum when you retire or if you worry about future tax hikes.

Taxable Investment Accounts

Investments in taxable accounts don’t receive tax-free advantages but are more versatile. Dividends and capital gains are taxed when received. Long-term capital gains on investments held for at least one year are subject to lower tax rates than short-term gains and ordinary income.

Tip: Open taxable accounts to get qualified dividends or long-term capital gains and take advantage of the tax advantages.

Ways To Pay Lower Taxes in Retirement

Here are some tips to make retirement taxes less challenging to manage.

Roth Conversions

It may be an appropriate strategy to convert some of your traditional IRA or 401(k) money into a Roth account if you expect to be in a higher tax bracket in the future. The conversion is taxable on its own, but after the money is in a Roth IRA, any gains are potentially tax-free, and you may also take withdrawals at any time.

Tip: To avoid a significant tax bill in one year, spread any Roth conversions over several years.

Take Advantage of Tax Brackets

Plan your withdrawals well to stay within a lower tax bracket. By taking calculated steps to withdraw from different accounts, you may cut down on your higher tax rate-exempt income.

Tip: Consider a mix of taxable, tax-sheltered, and tax-free accounts for more options. Track income and taxes each year.

Delay Social Security Benefits

Taking Social Security after age 70 raises your monthly benefits payment and lowers your taxable income. You may choose to use the rest of your income first, so Social Security benefits may be used later to help manage your tax bill during retirement.

Tip: Consider your retirement cash flow needs and hold off on taking Social Security to increase benefits. However, economists predict that the Social Security Trust Fund may run out of money around 2036.

You must include tax considerations in your retirement strategy if you want to manage your financial future. You may guard your nest egg to hopefully have adequate funds available during your retirement by knowing how income from different sources is taxed and by doing your homework so that you’re less exposed to taxes.

It is a wise strategy to work with a financial professional before retirement to get the benefits from your hard-earned savings and keep tax season in your golden years less stressful.

Make sure to visit our website, www.CortburgRetirement.com. Our site is filled with educational videos, eBooks, publications, and financial calculators designed to help you learn more about your finances.  As you search our site, send us a note regarding any questions you may have about any particular investment concepts or products. We will get back to you quickly with a thoughtful answer.

This is Miguel Gonzalez, Certified Retirement Counselor (CRC) and Managing Partner, with Cortburg Retirement Advisors signing off for this week’s educational podcast.  

 

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