Tax Time

With tax time upon us I got to thinking again about the importance of planning for changes to your tax liabilities in retirement. Whether you are retired, getting ready to retire, or dreaming of retiring someday, part of your planning needs to focus on taxes and how to minimize what goes to the government.

You need to be ready for the transition to investment, social security (depending on your age), and/or pension income, as even though it may be much lower than your salary, the way you are now being taxed could be different. The last thing you want in retirement is to get a nasty surprise at tax time, so be sure to discuss tax implications with your financial planner and/or tax preparer in advance of retirement. Having someone knowledgeable to work with will help ease your transition and will get you prepared for that first year and the years to come as your income sources shift to social security and withdrawals from 401k accounts.

It’s also important to discuss when it makes sense to take social security as in some cases taking it prior to full retirement age makes sense. In addition, if you plan to work and take social security, you need to make sure you don’t earn more than is allowed or you will lose part of your benefit for that year.

My wife is still self-employed with her thriving, and growing, home staging business (http://www.ready-set-stage.com) so her tax calculations add another wrinkle to the equation. If you as the retiree have a side business or your spouse still works or has his/her own business, the tax implications have to be built into your retirement tax plan. If the tax effects are variable year to year, the best way to avoid nasty surprises is to go with an estimate based on worst case tax scenario. Better to err on the conservative side, especially in the first retirement tax year.

We just had our taxes done and thanks to continued planning, our hit this year was much smaller than last year. While with our tax preparer, we discussed our plan for 2023 to minimize tax liability next year. In addition, quarterly meetings with our financial advisor allow us to monitor gains/losses and plan accordingly. I highly recommend making those conversations part of your routine.

With taxes top of mind this time of year, this is a reminder about the potential changes that can occur as you transition from regular paychecks to alternate forms of income. Including taxes in your overall retirement plan will make the transition less stressful and will help you keep more of your money.

I will be taking next week off.

Happy Easter and Happy Passover to everyone celebrating those upcoming holidays.

Next post will be week of 4/17/2023.

www.RetiredandInspiredat55.com 4-03-2023