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Tax Planning Strategies For Your Retirement

Written By: MB Group

You've worked to build the nest egg that can last you throughout your golden years and leave an inheritance to those you care about the most. However, if you fail to utilize effective tax planning strategies, you could be giving Uncle Sam a sizable portion of your savings and dramatically changing your retirement outlook. Fortunately, there are several simple and advanced tax planning strategies you can employ to reduce your tax liability. And the experienced team at the MB Group can help. We've outlined a few of the top tax planning strategies you can use to help ensure your golden years in retirement are as astonishing and relaxing as you deserve. 

Tax Planning Strategies for Social Security

While a large number of people are planning on taking Social Security when eligible, this may not be among the best tax planning strategies. Instead, consider whether delaying your Social Security would be most beneficial. To do so, you should look at a number of varying factors. Make sure to discuss the ins and outs of taking Social Security and have a clear understanding of the implications. 

Roth Tax Planning for Retirement

If you have traditional IRAs, it may behoove you to convert some or all of them to Roth IRAs. What's the difference? Let's explore.

What Are Traditional IRAs?

With traditional IRAs, you receive a tax deduction for your contributions, and your balance will grow tax-deferred until you begin taking distributions or at age 70.5 — when you must take required minimum distributions. It's important to understand when you start taking distributions you may be taxed on the entire amount withdrawn at your ordinary tax rate. And this can come as an unwelcome shock to someone ill-prepared.

What Are Roth IRAs?

With a Roth IRA, you do not receive a tax deduction for contributions, but you'll enjoy tax-free growth of your investment; and tax-free is always good! This means you'll be able to withdraw qualified distributions free of income tax. To be considered qualified, your contributions must have been in the account for a minimum of five years. You'll be subject to an early penalty if you haven't reached 59.5, but there are exceptions to this rule. 

Why Convert Traditional IRAs to Roth IRAs? 

  1. You can avoid the retiree "tax bomb." When some retirees start taking distributions from a traditional IRA, the extra income from the investments can catapult you into a higher tax bracket.
  2. Enjoy tax-free growth. By converting from traditional to Roth, you'll go from tax-deferred growth to tax-free growth, which is a monumental benefit. 
  3. Avoid a bigger tax consequence. The Tax Cuts and Jobs Acts activated lower tax rates for many taxpayers, but these adjustments are set to expire in 2025. This means required minimum distributions and other withdrawals from traditional IRAs in 2025 or later can potentially have even a larger tax consequence for those in retirement. 
  4. Create a legacy. By converting from traditional to Roth IRA, your beneficiaries or heirs will receive a lifetime source of tax-free income and growth. 

Although Roth IRA conversations aren't for everyone, it's more than worth a conversation with your tax planning professional or financial advisor to see how these types of tax planning strategies could benefit you. 

Asset Location, Location, Location!

When you are considering tax planning for retirement, location is everything. Not to be confused with asset allocation, asset location is all about the types of accounts you use to house investments. This is key because different investments will have different tax implications. Simultaneously, different investment vehicles can have different implications for taxation. It's simple: the goal is to use the most tax-efficient vehicle to hold the most tax-efficient investments. When you work with your financial advisor or tax planning accountant, you can use asset location to make a positive impact on your portfolio and tax efficiency. 

Contact MB Group for Tailored Tax Planning Strategies for Your Retirement

Tax planning for retirement can be challenging, confusing, and overwhelming. But it doesn't have to be. When you partner with the tax planning experts at the MB Group, we'll help you make the best decisions to help you achieve the retirement future you've always envisioned. 

Contact the MB Group today.

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