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Retirement Income Strategies: Mind your taxes
It is not easy to plan your retirement, and it is not getting any easier. The time of companies handing out pensions to their employees has passed. The stock market has taken unexpected turns for the worse, which destroys long-term savings. Social Security is expected to dry up. These are just a few of the reasons why people have grown interested in retirement income strategies.
The majority of retirement income strategies highlight the concept of earning money, saving that money, and making that money grow with time. While this strategy is logical, one must consider what is going to happen when retirement comes and they started withdrawing that money.
One of the large question marks about retirement that hurts people trying to saving is taxation on income. It is never known whether or not income tax tiers will remain consistent, increase drastically, or decrease drastically. Because of this, it is important to take into account different ways your taxes could change over the years when planning your retirement income strategies.
Changing your income strategies for tax purposes in your retirement could be very important. When you are retired, you will most likely still be paying taxes. This is especially true if the majority of your retirement income is return on investments. Including a Roth IRA in your retirement strategies can allow you to withdraw tax-free.
This is why so many advisers are recommending you include both a standard IRA as well as a Roth IRA in your retirement income strategies. They both allow you to save for retirement, but they each have unique distribution requirements as well as different tax treatments.
Income from a traditional IRA is taxed at distribution, for example, while income from a Roth is not. Contributing to both accounts as part of your overall retirement income strategy may give you greater flexibility in how much income you receive in retirement-and when.
Working with a financial planner is a great way to develop retirement income strategies that work well with your long-term goals. If you would rather go at it alone, then you should always have a mental note of future taxes.
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