Smart Tax Planning for Your Retirement: Keep More of Your Money

Planning for taxes in retirement means organizing your money so you can pay less in taxes and keep more for yourself. This includes knowing when to take money from different accounts, understanding how taxes work on each type of account, and using tax breaks when you can. With good planning, you might be able to lower your tax bill and have more money to enjoy retirement.

How to Take Money Out Without Paying Too Much in Taxes

The key is knowing which accounts to use first and when to use them. Different retirement accounts are taxed differently. By planning which accounts to tap into and when, you can try to keep your taxes lower each year.

Types of Accounts and How They’re Taxed

It helps to understand how the government taxes different types of accounts:

Regular Investment Accounts: When you sell investments in these accounts, you pay capital gains tax. How much you pay depends on how long you owned the investment and how much money you make.

Traditional Retirement Accounts: These include traditional IRAs and 401(k)s. You pay regular income tax when you take money out because you didn’t pay taxes when you put the money in.

Roth Accounts: Roth IRAs and Roth 401(k)s let you take money out tax-free in retirement. You already paid taxes when you put the money in.

Why Tax Planning Matters in Retirement

Taxes can be one of your biggest expenses in retirement. Without a plan, you might pay more taxes than you need to. This means less money for the things you want to do.

How Taxes Can Eat Into Your Savings

The taxes you pay on retirement withdrawals can change a lot based on when you take money out, how much you take, and where it comes from. Understanding this helps you make better choices about when and how to use different accounts.

Smart Strategies to Lower Your Taxes

Have Different Types of Accounts

Having money in different types of accounts gives you choices. You can decide which accounts to use based on your tax situation each year.

Why This Helps:

• You can adjust your strategy based on your taxes each year
• You can try to stay in lower tax brackets
• You have options when unexpected expenses come up

Mix Different Account Types: Understanding how taxable, tax-deferred, and tax-free accounts work helps you make smart choices about which ones to use first.

Plan the Order You Take Money Out

Many experts suggest this order, though your situation might be different:

1. Regular Investment Accounts First: Use these early in retirement when you might be in a lower tax bracket.
2. Traditional Retirement Accounts Second: Time these withdrawals to help manage your tax bracket over the years.
3. Roth Accounts Last: Keep these growing tax-free as long as possible for flexibility later.

Use Tax Breaks Available to You

Several tax breaks might help retirees, but not everyone qualifies:

Tax Credits: Some credits might apply to retirees, like the Retirement Savings Credit if you’re still putting money into retirement accounts.

Medical Expenses: Healthcare costs often go up in retirement. Some medical expenses might be tax-deductible.

Higher Standard Deduction: People over 65 get a higher standard deduction, which can lower their taxes.

Think About Roth Conversions

A Roth conversion means moving money from a traditional retirement account to a Roth account. You pay taxes now on the money you convert. This might help if:

• You’re in a low tax bracket this year
• You think you’ll be in a higher tax bracket later
• You want to reduce required withdrawals later

Things to Think About: Roth conversions need careful planning. You need to compare your tax rate now versus what you expect it to be later.

Plan for Required Minimum Distributions (RMDs)

Starting at age 73, the government makes you take money out of most traditional retirement accounts. This is important because:

• If you don’t take the required amount, you pay big penalties
• These required withdrawals can really increase your taxable income
• Planning ahead can help reduce the tax impact

Ways to Manage Required Withdrawals: One option is giving money directly from your retirement account to charity. This can count toward your required withdrawal while possibly reducing your taxes.

If You Retire Early

If you want to retire before age 59½, there are ways to get money from retirement accounts without paying extra penalties:

The Rule of 55

This rule lets people who leave their job at age 55 or later take money from their work 401(k) or 403(b) without the usual 10% penalty. This only works for the plan from the job you’re leaving, and you have to meet specific rules.

Equal Payment Plans (SEPP)

This program lets you take money from retirement accounts early without penalties, but you have to take the same amount each year for a set time. You must follow IRS rules exactly or you’ll face penalties.

Health Savings Accounts (HSAs) for Retirement

HSAs have special tax benefits that make them great for retirement:

• Triple Tax Benefits: You get a tax deduction when you put money in, it grows tax-free, and you can take it out tax-free for medical expenses
• Flexibility After 65: After age 65, you can use HSA money for anything (though you’ll pay regular income tax on non-medical withdrawals)
• No Required Withdrawals: Unlike other retirement accounts, you never have to take money out of an HSA

Getting Professional Help

Tax laws are complicated and everyone’s situation is different. Working with professionals can really help:

Benefits of Getting Professional Help

They Know the Current Rules: Tax laws change often, and professionals stay up-to-date on rules that might affect your retirement.

Plans Made for You: Every retiree is different, and professionals can help create strategies that fit your specific situation and goals.

Ongoing Help: Retirement planning doesn’t stop once you retire. Advisors can help you adjust your strategy as things change.

Finding the Right Team

When looking for professionals to help with retirement tax planning, think about:

• Their training and experience with retirement planning
• How they get paid and what it costs you
• How they approach planning and tax strategies
• How well they communicate and if they’re available for questions

Staying Flexible and Informed

Good retirement tax planning means staying informed about tax law changes and being willing to adjust your strategies. Regular check-ups of your retirement tax plan can help make sure it still works with current laws and your changing needs.

Tax laws change, and what works today might not work tomorrow. Building flexibility into your retirement income plan can help you adapt to changes while working toward your long-term money goals.

How Western Reserve Capital Management Can Help

At Western Reserve Capital Management, LLC, we have a team of credentialed professionals specializing in retirement tax planning for Northeast Ohio families:

Our team approach ensures you receive comprehensive expertise from multiple qualified professionals working together on your behalf.

Why Our Fee-Only Approach Benefits You

As fee-only advisors, we don’t earn commissions from selling products. This means our advice is based solely on what’s best for your situation, not what pays us the most. You pay us directly for our advice.

Convenient Locations Across Northeast Ohio

We have offices in Hudson, New Philadelphia, and Akron to serve clients throughout Northeast Ohio. We offer both in-person meetings and virtual consultations, giving you the flexibility to work with us in whatever way is most comfortable.

Our Comprehensive Approach

We don’t just look at taxes in isolation. We consider how your tax strategy fits with your overall retirement plan, including:

Moving Forward with Your Plan

Smart retirement tax planning is an ongoing process. You need to think about your current money situation, future income needs, tax law changes, and personal goals. While these strategies give you a framework for thinking about retirement tax planning, everyone’s situation is different.

The best retirement tax strategies are made through careful analysis of your specific situation and put into action with ongoing professional help. By taking charge of retirement tax planning now, you put yourself in a position to make smart decisions that match your financial goals and retirement lifestyle.

Ready to Get Started?

If you’re approaching retirement or already retired in Northeast Ohio, we’d love to help you develop a tax-smart retirement income strategy. We offer a complimentary 30-minute consultation to discuss your situation and see if we’re a good fit to work together.

Contact Western Reserve Capital Management today to schedule your free consultation and take the first step toward a more tax-efficient retirement.

Frequently Asked Questions

Remember that retirement tax planning isn’t about avoiding taxes completely. It’s about developing strategies that help you manage your tax obligations efficiently while supporting your overall retirement goals. Each decision should be looked at within your complete financial picture and long-term objectives.