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A Four Part Series: Avoiding Pitfalls in Your Retirement Plan Part Four: Managing Taxes in Retirement


Like we discussed last week, we can’t control tax policies or tax rates imposed on us.  Death and taxes are two certainties in life so how can you try to minimize what goes to the government?  Taxes can be a big part of a successful retirement plan.  Generally speaking, Traditional IRA and 401k plan withdrawals are taxed at ordinary income rates.  Taxable brokerage accounts can be managed for taxes by having dividends taxed at lower capital gain rates as well as flexibility to offset gains and losses within accounts on a yearly basis.  If you had the foresight to invest in a Roth IRA, you may have a tax-free income source in retirement.


               Coordinating your income plan in retirement with your financial and tax advisors can ultimately lead to more money in your and your heirs’ pockets.  Yogi Berra famously said, “when you come to a fork in the road, take it.”  Who knows what he meant by that, but as a financial planner, I know it is beneficial to have choices when it comes to your income sources in retirement.  If time is on your side and you have more than ten years before retirement, consider the advantages of saving amounts in addition to your retirement plan in a Roth IRA so tax-free income is a potential option for you in retirement. 


               Work with a trusted advisor to develop your income plan so your money does the best it can for you and future generations.  If you are over 70 ½, you have to take a Required Minimum Distribution (RMD).  If you don’t need that money to live on, you could consider using the proceeds to help secure your estate in a more tax efficient manner than leaving an IRA to your children (that would be subject to income tax at their brackets).


               Even though you can’t avoid death and taxes, try to do the best you can for yourself and your family to manage your current and future potential tax burdens while you’re alive!

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