Remember that old saying about nothing being certain in life, except for death and taxes? Whether you’re planning for retirement in the next few years, or you’ve already reached that milestone, you might know that you will still pay income taxes even after your career ends. Of course, the amount of those taxes might vary somewhat from the past, but you still need to plan for the expense.
Some forms of income in retirement will not be taxable. For example, if you’re withdrawing funds from a Roth retirement account, it is likely you know this income will be tax-exempt. That’s because you make contributions to the account with after-tax dollars during your working years, so you’ve essentially already paid taxes on that income.
On the other hand, pensions, taxable annuities, and withdrawals from traditional retirement accounts will be subject to income taxes. If you decide to hold a part-time job in retirement, those wages will naturally be taxed as well. Your taxes will be calculated according to your income bracket, with a percentage of your total taxable income due at tax time.
We do have some good news: Last year, the Tax Cuts and Jobs Act lowered those percentage rates by a few points for each tax bracket. For most people, their income tax rates dropped by about 3 percent. Many retirees will find that they owe slightly less to the IRS this year, although that’s not guaranteed (your own individual factors will influence your final amount due).
Most retirees have their income taxes withheld from disbursement checks, so that they don’t have to worry about a large tax bill in the spring. Others choose to make quarterly payments to the IRS. Either way, now would be a good time to check on your withholding or payments to see if you’re on track to cover your income tax debt by the end of the year. You don’t want a surprise bill next April!
Thanks to the slightly lowered taxation rates, you might even find that you’ve overpaid slightly, and will be due a refund. But we urge you not to make assumptions, and instead work with your tax professional before making any decisions about withholding or quarterly payments.
If you need any other help with planning your retirement income, please give us a call. We can help you learn what to expect in retirement, and formulate an income plan that meets your needs.
Advisory services are offered by Capital Appreciation, Inc. dba Asset Protection Group a Registered Investment Advisor in the State of Florida. Insurance products and services are offered through Insurance Planning Services of Miami, Inc. dba Asset Protection Group. Capital Appreciation, Inc. and Insurance Planning Services of Miami, Inc. are affiliated companies. Asset Protection Group and Insurance Planning Services of Miami, Inc. are not affiliated with or endorsed by the Social Security Administration or any government agency.