Tax Planning Strategies for Retirement
Imagine the day you are finally done with work. You’re finally taking that trip you’ve always dreamed of. You’re dominating the pickleball court and playing golf on the weekends. There’s so much time for your social groups and hobbies, Not to mention the time spent with the grandkids! Retirement is the golden light at the end of a long dark tunnel for many working Americans. It’s the much-deserved rest and reward for a lifetime of work. But how can you best financially prepare for it, and how do you know what is going to be taxed from your savings? (And yes, it does get taxed!) DeMar Consulting Group once again has you covered with our quick crash course on tax planning strategies for retirement and the best strategies to assist you in your dream of sitting on that beach enjoying life after years of dedicated work!
Choosing the Right Retirement Accounts
One of the easiest and most effective tax planning strategies is deciding where to put your savings. Typically, there are four types of savings accounts, each with its tax advantages.
Roth Accounts
Roth IRAs and Roth 401(k)s consist of after-tax dollars. This means the money you have contributed has already been taxed, and the withdrawals you make could potentially be tax-free. Roth accounts may also be exempt from Required Minimum Distributions (RMDs) unless the account is inherited.
Tax Deferred Accounts
The next type of accounts are your Traditional IRAs, 401(k)s, and 403(b)s. These accounts allow contributions to be tax-deferred, which reduces taxable income in the year the contribution is made. Taxes are paid only when funds are withdrawn during retirement, often at a lower income tax rate. However, these accounts are subject to RMDs and require annual withdrawals once you reach a certain age.
Taxable Accounts
Let’s look at Taxable accounts now. These accounts are your brokerage and savings accounts. They are funded with after-tax dollars and offer flexibility for withdrawals at any time. Unlike tax-deferred accounts, these do not require RMDs. One major benefit is the ability to offset up to $3,000 of ordinary income with capital losses from investments.
Health Savings Accounts (HSA)
Lastly but just as important are HSAs. These accounts are often overlooked but can be a powerful retirement tax strategy. Contributions reduce taxable income, and withdrawals are tax-free when used for qualified medical expenses. HSAs are also exempt from RMDs, making them a valuable tool for healthcare costs in retirement.
Tax Diversification: Balancing Your Retirement Portfolio
Of course, every retiree’s tax situation is unique. We know peace of mind is what is most important to you. That’s why working with us to develop a well-diversified portfolio that ensures flexibility when withdrawing funds while minimizing tax burdens is important. Here’s how to approach it:
- If you’re in a low tax bracket now, consider allocating more funds to Roth accounts, as you may face higher tax rates later.
- If you’re in a high tax bracket, maximize tax-deferred accounts to take advantage of deductions now and potentially lower taxes in retirement.
- For balance, a mix of taxable, tax-deferred, and Roth accounts provides flexibility based on future tax laws and financial needs.
Our team at DeMar Consulting Group helps clients build customized retirement income strategies that align with their goals while minimizing tax liability.
How We Can Help Your Tax Planning for Retirement
Retirement should be a time of relaxation and enjoyment, not stress and financial burdens. That’s why our financial advisory team provides personalized retirement planning to help you:
- Optimize your tax strategy to keep more of your savings
- Diversify your retirement income sources for long-term security
- Create a plan that ensures steady, tax-efficient withdrawals
Whether you’re nearing retirement or still planning for the future, having a strategic financial roadmap is crucial. Let’s schedule you for consultation with our financial advisory professional, DeeDee Baze, CFP®, EA, today—so you can focus on tomorrow’s sunny beaches and pickleball courts!
