You saved your entire career for retirement. Even if you started late, you managed to be disciplined and build up a nice nest-egg for yourself.
Upon retirement, you’re ready to cash that in. The problem is, there are tons of tax implications to cashing out your retirement.
You earned your retirement. You don’t want to give it all away to the IRS. Read on to learn smart retirement withdrawal strategies that you can use to lower your tax burden.
Are Your Assets Diversified?
Do you have your retirement savings in one vehicle like a 401(k)? Maybe you have an IRA that’s you’ve been depositing money in. You probably applied tax strategies when you were putting money into retirement.
For example, you don’t pay taxes when you pay into a 401(k) or some IRAs. You pay those taxes when you withdraw money.
You may have invested in stocks or real estate during your working years. You may have to pay capital gains taxes on those earnings.
In the case of a Roth IRA, you don’t get a tax deduction for money invested. You also don’t pay taxes upon withdrawal.
What does all of this mean for you? The best retirement withdrawal strategies for you will depend on the type of retirement assets you have.
In the best-case scenario, you’ll have diversified your retirement assets. You may pay taxes on some withdrawals, but not others.
You’ll need to have Retirement Wisdom to figure out the complications of retirement.
Calculate How Much You Need
You’re now living on a fixed income in retirement. You’ll want to figure out how much you need to live comfortably before you decide how much you need to withdraw.
Take all of your living expenses and come up with an amount that allows you to live comfortably. Almost half of Americans don’t know what this number is for them.
You’ll then figure out how much you’re getting in social security each month. Subtract your social security from your living expenses, which will give you how much you need each month from retirement.
You can then apply one of the following retirement withdrawal strategies. If you have different types of assets, withdraw from one at a time, starting with your taxable ones. You’ll then move on to non-taxable withdrawals later in retirement.
Another strategy is to withdraw from each account proportionally. This is a good strategy to use if you don’t have to worry about capital gains. You’re basically spreading the tax obligations around during your retirement.
This strategy will lower your taxes over a longer period of time.
Using Smart Retirement Withdrawal Strategies
When you’re planning for retirement, it’s not as simple as cashing in your accounts and enjoying your time off. That can leave you paying thousands of dollars in taxes.
You can save money on your taxes be using retirement withdrawal strategies that give you the best tax advantage. The one that you choose will depend on your retirement assets. You may want to take a little bit out at a time, or you may want to withdraw out of multiple accounts.
It’s always best to check with a tax accountant or financial planner to figure out the best strategy for your situation.
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