Taxes, and tax strategies can play a significant role in your overall retirement plan, which is why it’s important to understand some of the basic terms. For example, a tax credit is a dollar for dollar benefit.  A tax deduction is worth your highest marginal tax bracket, for instance 28 cents on the dollar.  Tax deferrals delay when you will pay your tax to later years like your 401(k) for instance. Tax free means you owe no tax.
One area in retirement that can be affected by taxes is in the withdrawals from your accounts. Before planning distributions from your retirement accounts for the upcoming year, make sure you have reviewed the most advantageous tax strategy. Tax diversity in retirement can give you different buckets to pull from strategically.  Understanding the most advantageous tax strategy can allow you to maximize the effectiveness of your financial plan and minimize your tax burden.  Your financial advisor can help you to know which buckets to pull from, and when.
Another area where taxes can have an implication on your overall retirement plan is in your housing properties. Don’t be afraid of paying off your house because you are worried about losing the mortgage tax deduction. The mortgage tax deduction doesn’t always add up to what we think it will.  Depending on your individual situation, you may be better off paying it off completely. Entering retirement without a mortgage payment can also be a great way to relieve pressure on your retirement assets and reduce your monthly outflow. When selling your principal residence, make sure to get professional guidance on the tax implications and opportunities. Tax rules relating to the sale of a home have changed significantly over the years.  You’ll want to know what the gain or loss on your home will be as each can have tax implications and opportunities that you’ll not want to avoid or miss out on. If you own a rental house with large gains and are thinking about selling it, consider making it your personal residence first. If you move into your second home for two years, you may be able to eliminate up to $500,000 in taxable gains.  This savings could greatly impact your retirement nest egg potential.
No matter what lies ahead for you in your life in retirement, make sure you have discussed specific tax strategies with your trusted financial professional. There may be serious implications on your financial health if not understood or properly planned for. Click HERE to download your tax strategy guide and be sure to schedule your next appointment now online.