7 Experts on Retirement Planning and Taxes

There is a lot to consider when planning for retirement. To take full advantage of investing, it’s a good idea to start early. It’s also important to think about inflation and that health care expenses will likely increase the older you get.

Here are what experts say you should think about as you save for retirement:

Determine how much you’ll need

Josh Zimmelman, Westwood Tax & Consulting Owner
“You need to look at your savings and figure out when you can actually afford to retire and how much longer you need to continue working. Be realistic. Better to push your retirement back a few years, than realize too late that you didn’t save enough. Think about how much you’ll likely spend on different necessities during retirement. Some of your expenses will probably go down, but others will go up. Add about 3 percent per year for inflation.”

Mike Scott, Independent Bank Senior Mortgage Loan Originator
“One thing to keep in mind is what the expected level of retirement income is, relative to the individual’s current income. If they expect to have $50,000 per year from retirement income sources, but are currently making $80,000 per year, then it makes more sense to make contributions to a traditional IRA or 401K, thus reducing the current tax burden since they are in a higher tax bracket.

If they expect the retirement income level to be in an upper income bracket, it may behoove them to contribute to a ROTH IRA or a ROTH 401K rather than a traditional IRA or 401K, particularly since they would then be locked into the current tax levels.

Given the deficit that the government is running on, I expect our tax obligations to rise over the next decade or two. Given that the current three upper level tax brackets are based on income of $160,725 (single), $321,450 (married) and go up from there, the decision would need to be made based on those levels, which are always going to be subject to change. At those levels, the tax rate jumps from 24 percent to 32 percent, then rises from there to 37 percent for income levels of $510,300 for an individual and $612,350 for a married couple.”

Consider diversifying for tax purposes

Brandon Renfro, Ph.D.
“Young people can really set themselves up for success by thinking about retirement taxes ahead of time. You’ll probably receive retirement income from a few different sources, so think about how those integrate with each other. For example, a larger portion of your Social Security benefit is taxable as your combined income increases. You can lower your total tax bill by planning ahead to make that combined income figure lower without necessarily lowering your actual income, since not all income counts in the combined income calculation.”

Alex Caswell, CFA, CFP ®, Wealth Planner at RHS Financial
“Young people should consider having three types of investment accounts. They should have a Roth IRA or 401k, a regular IRA, and a taxable account. Just like diversifying investments, someone should diversify their tax structures. Just like we don't know what will happen to the stock market, we don't know what will happen to the tax code. Right now capital gain tax is the lowest it has been historically, but that won't always hold true. By having multiple types of accounts, a person retiring can have the flexibility to navigate the tax code.”

Patrick Ford, CPWA ® Director of Wealth Management of Brown Wealth Management
“Having a taxable and a tax-free source of funds in retirement can greatly help a retiree make the most of our progressive tax system. In retirement, you might withdraw from your traditional IRA until you find yourself close to a higher tax bracket. Any additional income you need in that particular year could be withdrawn, tax-free, from your Roth IRA.”

Jason B. Ball, Ball Comprehensive Planning, LLC Founder
“As the years have gone on, I tend to prefer a tax bouquet that being some in tax-deferred accounts, some in already taxed accounts like a Roth IRA, and some in non-taxable accounts. This gives some tax flexibility if changes are made to the tax code.”

Plan for health care expenses

Josh Zimmelman, Westwood Tax & Consulting Owner
“Get a head start on Medicare and Social Security. There are a lot of complicated rules so make sure you understand everything you need to know before you need it. Apply for social security and set up your pensions and retirement withdrawals. (And set aside some cash reserves in case you hit any unexpected delays.)”

Shobin Uralil, Cofounder and COO of Lively
"There are many demographics, particularly young working Americans, where a high-deductible health plan could make sense. For example, if you rarely go to the doctor, why pay high premiums for a service you may not use. Rather, take the savings and put it into an HSA. Because of this, we’re seeing growth in HSAs as a vehicle not only for health savings in the near term, but for anticipated health costs in retirement as well. These new contribution limits will help increase the value of HSAs to individuals and families throughout their lives.

We’d encourage users to max out their contributions throughout the year to not only take advantage of the tax savings, but also to ensure that they are putting themselves in a position to better afford their future healthcare expenses. We also encourage employers to do their part by extending HSA contributions as a benefit to their employees.”

Make decisions based on current finances and long-term financial goals

Jason B. Ball, Founder of Ball Comprehensive Planning, LLC
“The goal is typically to lower the marginal tax rate that you pay on your taxes. What I mean by this is that on each next dollar you earn, there is a marginal tax rate that is applied. Your goal is to reduce this marginal tax rate and to have your overall effective tax rate be lower. So, it really is a decision to either accelerate to pay taxes now or decelerate to pay taxes in the future. There is software to help strategize individual tax situations and we strongly recommend working with a CFP(R) or CPA in this area do to some of the complexities.”

Josh Zimmelman, Westwood Tax & Consulting Owner
“Make sure you’re contributing as much as you can afford to your retirement savings account/s. After age 50, you can make additional 'catch-up' contributions to your retirement savings. If you have multiple accounts, considering consolidating all your 401(k) and IRA plans as you get closer to retirement.

Pay off your debt before you retire. Try to get rid of any outstanding debts as quickly as possible, so they don’t drain your retirement funds.

Think about getting a part-time job. Retirement doesn’t mean you have to completely stop working. It might be an opportunity to shift to a low stress part time gig. Starting a brand new career can be difficult at an advanced but there are a lot of opportunities for project-based jobs where you can use your current experience in a new way.”

Check out Best Company's Retirement Taxes Guide for more information and tips.

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