Showing posts with label retiree. Show all posts
Showing posts with label retiree. Show all posts
Wednesday, May 10, 2017
Friday, May 5, 2017
Wednesday, May 3, 2017
Friday, February 10, 2017
Case Study: Managing Taxation on Retirement Income Withdrawals
Example: How to Manage Taxes on Withdrawals for Retirement Accounts.
This hypothetical example is for illustrative purposes only. This hypothetical scenario assumed the couple does not receive Social Security benefits. Social Security income would further complicate the tax scenario described above and should be considered when creating a withdrawal strategy.
As a way to help minimize the taxes you’ll pay, consider the following hypothetical scenario. It illustrates the way a retired married couple whose annual expenses total $100,000 might seek to manage their taxes.
Our hypothetical couple expects $42,000 in gross income (all taxable) before tapping their retirement accounts, so their gross income gap—(before considering taxes)—is $58,000. They anticipate $20,000 in deductions and exemptions, so their expected taxable income before withdrawals is $22,000. If they withdraw $52,900 from their traditional IRAs, it would bring their taxable income to $74,900—the top of the 15% bracket. They could then withdraw the remaining $5,100 that they need to cover their income gap from a Roth IRA, which does not generate taxable income (assuming the withdrawal is qualified). The chart (above) shows their cash flow and taxable income.
Our hypothetical couple expects $42,000 in gross income (all taxable) before tapping their retirement accounts, so their gross income gap—(before considering taxes)—is $58,000. They anticipate $20,000 in deductions and exemptions, so their expected taxable income before withdrawals is $22,000. If they withdraw $52,900 from their traditional IRAs, it would bring their taxable income to $74,900—the top of the 15% bracket. They could then withdraw the remaining $5,100 that they need to cover their income gap from a Roth IRA, which does not generate taxable income (assuming the withdrawal is qualified). The chart (above) shows their cash flow and taxable income.
Other Options for Our Hypothetical Couple
The hypothetical couple in this scenario leaves the bulk of Roth IRA assets alone, leaving them in place to potentially generate tax-free growth. In certain situations, however, it may be advantageous to tap Roth assets instead of tax-deferred or taxable accounts. These include situations when:
- Any distributions at all from a tax-deferred account would cause your taxable income to exceed your target marginal tax rate
- Withdrawing from a taxable account would require selling assets held less than a year, resulting in short-term capital gains, which are taxed at ordinary income tax rates
- You are also trying to minimize taxes on Social Security benefits, withdrawals from a tax-deferred account would have an impact on the taxability of those benefits
Your circumstances may be considerably different from those described in the scenario. Nevertheless, you may be able to apply the principles to your own situation. A tax professional can help you explore the implications of different withdrawal strategies, help minimize the amount of taxes you pay on hard-earned savings, and, of course, help you maximize your ability to live the retirement you envision.
Wednesday, January 25, 2017
Friday, November 4, 2016
Friday, July 15, 2016
Friday, July 8, 2016
Wednesday, April 13, 2016
Finding The Right Retirement Portfolio Risk: 4 Sample Portfolios
The sample target investment mixes below show a blend of stocks, bonds, and short-term investments with different levels of risk and growth potential. With retirement likely to span 30 years or so, you’ll want to find a balance between risk and growth potential.
Wednesday, April 6, 2016
Wednesday, February 17, 2016
Wednesday, February 3, 2016
Wednesday, January 27, 2016
Wednesday, December 16, 2015
Friday, December 19, 2014
10 Social Security Claiming Strategies: #9 of 10
#9. 66 Is The Magic Age!
If you WAIT until 66 to claim benefits, you can:
— Collect your FULL Retirement Benefit.
— Exercise some Creative Claiming Strategies.
— And, AVOID losing benefits to Earnings Cap
Restrictions.
— Collect your FULL Retirement Benefit.
— Exercise some Creative Claiming Strategies.
— And, AVOID losing benefits to Earnings Cap
Restrictions.
Friday, December 12, 2014
10 Social Security Claiming Strategies: #10 of 10
#10. The Basics
• You can collect retirement benefits as early as 62, but they will be reduced by -25% or more for the rest of your life.• If you wait until your Normal (aka Full) Retirement Age, currently 66, you can collect your full retirement benefit, even if you continue to work.
• Or, if you delay collecting benefits beyond your normal retirement age, you can increase the amount by +8.0% per year up to age 70.
Wednesday, October 29, 2014
Friday, September 12, 2014
The Top 10 Retirement Challenges: #4. Enjoying Retirement
While it is important to come up with a retirement withdrawal rate that is sustainable, it should also allow clients to enjoy their retirement. Planners and clients often focus on not running out of money, but clients also don't want to die with too much money.
Friday, September 5, 2014
The Top 10 Retirement Challenges: #5. Withdrawal Strategy
Often it's very difficult to move from a lifetime of spending what comes in to drawing down on a portfolio. Coming up with an amount to keep in cash reserve -- and maintaining it -- is critical. Many people might find 3 bucket strategy helps them compartmentalize what they are spending in order to avoid stress over market fluctuations.
Managing the tax impact of withdrawals and understanding how each piece of income is taxed is essential.
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