馃攳
Taxes in Retirement: Planning for Tax Costs - YouTube
Channel: Approach Financial
[0]
It's reasonable to assume that when you're in retirement, you're no longer
[3]
working and earning an income, so you shouldn't have to pay taxes.
[7]
But unfortunately, that's not how the IRS works. You typically do pay some
[12]
kind of taxes in retirement, and that's important because of course,
[16]
you've got some fixed income sources, and you might be taking money out
[20]
of retirement accounts. But the more you have to pay in taxes,
[24]
the less you have left over for spending on everything that's important
[28]
to you. So in this video, we're going to give you some information
[32]
to help you not get caught by surprise, so that you can budget
[35]
for what your taxes might be and strategize your spending. And there are
[40]
also some additional side benefits of keeping your taxes low. It is easy
[46]
to overdo that, and I don't know that you need to necessarily go
[49]
to zero percent taxes because the price of getting there can be quite
[53]
high. But knowing a few things can help you take advantage of opportunities
[59]
that could potentially help you. So. We're going to go over types of
[62]
accounts, and that helps you understand what the tax consequences are,
[66]
and then you can choose what to spend, so that you kind of
[70]
"dial in" your tax level as they show with those sliders there.
[75]
We'll talk about Social Security and pension income, as well as required
[81]
minimum distributions. So the different types of accounts you have are going
[88]
to affect the taxation when you take money out. In tax deferred accounts,
[93]
those are things like your traditional pre tax IRA, maybe a rollover IRA,
[99]
a 401K with pre tax money, that money has never been taxed,
[104]
and so it will need to be taxed when you take it out
[107]
of retirement accounts. So when you're ready to spend it, if you pull
[111]
out, let's say $25,000, you can't necessarily spend that whole $25,000,
[117]
or you want to know if you can or not,
[120]
because you may need to send some of that to the IRS for
[123]
tax payments. Then we have tax free accounts. Those are your Roth IRAS,
[129]
for example, an HSA[Health Savings Account] if you use the money for qualified
[135]
healthcare expenses. These accounts do not generate taxable income when
[140]
you take the money out. There are also taxable accounts like your individual
[144]
or joint brokerage accounts, those are going to have you paying taxes each
[150]
year as you earn the income in those accounts, but you might also
[154]
have gains if the things you invest in gain value. If you sell
[159]
those investments, you would typically have maybe long term or short term
[163]
capital gains, taxes that you have to pay on those gains,
[167]
and typically long term capital gains are going to be the most favorable
[172]
for you. Social Security might be taxable or it might not.
[177]
If it's your only source of income, there's a decent chance that you're
[181]
not going to pay tax on Social Security income, but if you have
[186]
other sources of income, including withdrawals from pre tax retirement accounts,
[192]
you might have to pay taxes. I'm going to include some information in
[197]
the description, a link right to a Social Security Administration's website
[202]
to help you figure out more about that.
[206]
Pension income is typically taxable, so if that's from an employer that
[210]
you worked for, they pay you a lifetime income, that's typically taxable.
[216]
Then your required minimum distributions are often taxable. The IRS requires
[222]
you to take money out of tax deferred accounts, and the idea is
[226]
to make sure that that money isn't tax protected indefinitely, so they want
[231]
to generate some tax revenue. In most cases, that's going to be in
[236]
pre tax accounts, but there are a couple of exceptions, maybe with inherited
[241]
accounts, where it's not going to generate tax bill for you,
[247]
so How can you manage your tax? There are a couple of strategies.
[250]
One is to pull from whichever bucket makes the most sense to pull
[255]
money out of. So if you're in a year where you have a
[258]
relatively high income, for example, and you want more money out of your
[263]
retirement accounts, it might make sense to pull that from a tax free
[268]
bucket, like a Roth IRA. That way you're not going to further increase
[273]
your tax bill while you're at a higher rate.
[277]
You can also look at filling the tax brackets, and that means trying
[282]
to pull out just enough to pay taxes that are relatively low rates,
[286]
so if you're in a low income year, that's an opportunity to say,
[291]
"I'm okay with this tax rate, I'm going to take out a little
[294]
bit more money from pre tax accounts and go ahead and pay those
[298]
taxes because I think that that will level out the rate at which
[303]
I pay." So yes, you are pre paying some taxes, but it can
[307]
potentially end up in you paying less overall during your lifetime.
[313]
That's similar to what you're doing with a Roth conversion strategy.
[317]
With that approach, you convert money instead of actually taking a withdrawal.
[321]
You shift it from a pre tax account to an after tax Roth
[326]
account, and there are some tricky rules when you do this,
[329]
but if done well, it can result in you having
[333]
money in tax free accounts, and again, typically, ideally, you're paying
[338]
at a relatively low rate so that you can smooth out those taxes
[343]
throughout your lifetime. Then there's also the idea of just general tax
[349]
efficiency. So, that's trying to minimize turnover and try not to get too
[355]
much in short term capital gains in your taxable accounts,
[360]
maybe consider asset location, like what types of investments go into taxable
[365]
accounts versus tax sheltered accounts and other things like that. So if
[371]
you'd like to talk about these types of things and get some ideas
[375]
on your retirement, I'd be happy to chat with you.
[378]
We can go over all of this and much more... And
[382]
please subscribe to this channel. This helps you stay up to date.
[386]
It does not cost you anything, and it also helps me out a
[389]
tiny bit, so thanks for doing that! And thank you to everybody who
[394]
has already subscribed.
Most Recent Videos:
You can go back to the homepage right here: Homepage