Remember Your Tax Bill!
Tax Day is right around the corner! While you are getting ready for this year, it is also important to remember your tax bill in retirement. You will continue to be taxed even when you stop cashing a regular paycheck, and you should learn how different incomes are taxed once you retire. Creating a plan for these taxes early on is essential for properly preparing for retirement.
Taxation on Social Security Benefit
Have you thought about how your Social Security benefit will be taxed? To figure it out, you should add up your adjusted gross income, nontaxable interest, and half of your Social Security benefit to get your combined income. Up to 50% of your SS benefit may be taxable if you fall into the $32,000-$44,000 range as a married couple filing jointly, or the $25,000-$34,000 range if filing as an individual. If you are in the over $34,000 range as an individual or the over $44,000 range as a couple, you may be looking at an up to 85% taxable benefit. It is important to understand the amount that will be taken out of this when planning for retirement needs.
Retirement Account Distributions
It is also important to consider investment withdrawals when it comes to taxation on your retirement funds. Short-term capital gains are investments that are held for less than a year and are taxed at regular income rates. Long-term capital gains are all of your investments that are held for longer than a year and are taxed at rates of 0%, 15%, or 20% based on your income. Investments have likely been wrapped up in your 401(k), IRA, 403(b), 457, or Thrift Savings Plan for over a year, but those investment withdrawals will still be taxed as ordinary income. However, when you reach the age of 72, minimum withdrawals will likely be required from your tax-deferred retirement accounts. The IRS sets these amounts and may require you to withdraw more than you typically would in a calendar year, which can result in an additional tax burden.
All information contained herein is derived from sources deemed to be reliable, but cannot be guaranteed. This material is provided as a courtesy and for educational purposes only.
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Steward Partners, its affiliates, and its Financial Advisors do not offer tax or legal advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.