Remember Your Tax Bill!
Tax Day 2022 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 retired. 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 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.
Taxes on Home Sales
With such a crazy housing market right now, it is also vital to understand the basics of home sale taxation. $250,000 can be taken tax-free from a home sale no matter your age if you have met the specific requirements. These may include property occupation for 2 of the last 5 years. Married couples can be eligible for $500,000 as well if requirements are attained. However, this does not apply to regular property sales, only to primary residences.
There are many sectors of taxes on different types of incomes, and we want to help you craft a retirement plan that includes all of them. Taxes may be on the rise and now is the time to prepare as thoroughly as possible. Click HERE to schedule your initial complimentary meeting with Moore’s Wealth Management and get started on your retirement strategies.