No matter where you fall on the political spectrum, we all appreciate at least some things our state and federal government provide from the money we pay through various taxes. Most of us like highways, fire departments, border safety, the military, and funding for schools.

Retirement planning is a simple numbers game. It’s a matter of balancing the amount you have coming in with the amount you have going out.

Limiting taxation allows you to have more money to pay for your fixed and variable expenses during retirement. We like to say, “A dollar saved in taxes is just as good as a dollar earned”.

We often meet with people who say to us, “We think we’re on track for retirement because we have $500,000 in our IRAs or 401ks”.

Sadly, we have to break the news to them. You do have that much in your account but you might not end up keeping all of it. We often get blank, sometimes defensive, looks.
We continue to explain that they have a major interest in their qualified account such as an IRA or 401k, and that is the interest of the Federal Government or, if you live or work in Oregon, the State of Oregon.

When looking at your overall picture for retirement have you factored in taxes to your income planning?

Did you know that up to 85% of your Social Security benefit can be taxed?

That’s right! After the Federal Government took out a chunk of your paycheck every month for your whole working career—your Social Security check can be taxed.

When you sit down and devise a plan to create a paycheck that will last for your retirement, you must have a strategy to minimize taxes.

Have you considered a Roth IRA?

In a Roth IRA, you pay taxes as the money goes into the account. When you pull the money out, it comes to you tax free. In a traditional IRA it works the exact opposite way. As you put money into the account, you don’t pay taxes, but as you pull it out every dollar is taxed as regular income. Most often you use an IRA to either limit your taxable income while you’re working or because you believe you’ll be in a lower tax bracket during retirement. You often use a Roth IRA because you’d like to pay taxes on the seed rather than the whole harvest.

If you can stay in the same tax bracket, pay taxes on some of your “taxed forever” 401k or IRA, and convert it to Roth, it could benefit you in the long run.

If you have a Roth IRA, a traditional IRA and Social Security during retirement, it might be possible to strategically draw income from the IRA up to the point where the next dollar you pull out would cause your Social Security to be taxed. Then for the rest of the year you can draw income from your Roth IRA potentially leaving your Social Security untaxed.

What about tax planning? Every year in February, March or April you have your taxes prepared. Truly effective tax planning is a process that takes place year round. As questions arise or opportunities come up, you should be able to speak with a CPA about your options to minimize your overall tax burden. Most people don’t have someone they can go to.

Please know you don’t have to “go it alone”. Find the right “Retirement Coach” who understands how to factor taxes into your overall planning picture. We want you to thrive in retirement, not just survive. Many people aren’t getting the help they need and don’t know where to go for answers.

You deserve better and you deserve to have peace of mind in retirement.