Are You Tax-Ready for Retirement?

Peter, good to see you.

Welcome back, everyone. We start with an important question. Are you tax ready for retirement? Taxes, of course, don't disappear in retirement. In fact, understanding tax implications becomes even more important. So we're going to talk through four tax questions that you really should be asking your financial advisor before you retire. First question, how will my tax situation change once I retire? Yeah, taxes do not disappear in retirement.

In fact, they get more complicated. And that's why this is so important, because during your working career, generally the taxes are essentially calculated and withheld for you on your behalf before you even see your money. The IRS has already taken their bite out of it. And then at the end of the year, you file taxes and you just reconcile.

Did they take enough or do you need to pay a little extra or do you get a little back during retirement? The first several years, especially, is a new game altogether. And you've got to figure out the new rules to the game.

Same end goal. The IRS is going to collect their fair share. But now you are responsible for the withholdings yourself from each and every source of income. And usually in retirement, rather than just one paycheck, we've got multiple streams of income, which that is a good thing. But you've got to figure out if you're withholding enough from each one of them. So Social Security might be different than pensions, might be different than your 401k or IRA withdrawals, might be different than your annuity. By the way, we've got two different social securities coming into a married couple's household and you've got to do the reconciling of each one of those. And usually it is a matter of, well, let's sort of guess based on how much income we think is going to come in the first year, double check it when we file our first year's returns, make necessary adjustments and then double check it again the second year.

Next question. Are there strategies to reduce my tax liability in retirement? Oh, absolutely. And the sooner that you can start on those, the better even pre-retirement. So, I mean, in all likelihood, taxes are going to be going up into the future.

I know we have this temporary reprieve on the horizon. We currently are in historically low tax brackets, but the risk of taxes going up is the biggest factor in the, are there strategies to reduce my taxes in retirement? And yeah, we're showing the 2025 tax brackets here on the screen. The standard deduction is up.

These brackets are very low. A lot of income falls into the lower brackets, but during our working career, if we can jam as much into those brackets and prepay our taxes as possible, that's going to make your retirement that much more tax efficient. I'm going to put it another way, Lauren, for the last generation, Americans have been taught to defer their taxes on their retirement accounts. And what that has set up is retirees being in the highest potential tax situation that they could put themselves in once they've retired because a hundred percent of all of their assets and therefore all of their income is completely taxable. So if during our working career and especially the first several years of retirement, we can be proactive in managing that yet to be taxed, tax deferred balance and liability, we can make the duration of retirement much more tax efficient and typically bring down that lifetime tax bill substantially.

And that kind of dovetails into our next question, a topic that we've discussed many times before. Should I consider a Roth conversion before I stop working? Let's consider being the key word because it's not a universal.

It never is a universal answer. Oh, convert everything to Roth. Don't convert anything to Roth. You've got to take a look at the numbers because I've got some people who are realistically, if we forecast out their situation, going to be in a significantly lower tax bracket once they retire, maybe their household income is coming in, you know, above 250, 300,000 and they are well within the 24% bracket and maybe get a bonus or something. And even going up to the 32% bracket, when looking at their actual expenses, what their lifestyle actually costs them, we can reasonably forecast out that in retirement, they're only going to be in the 12% bracket. It probably doesn't make sense to convert a whole lot of assets up in the 24 or 32% bracket when we're going to be able to pull it out in retirement at 12 to 15. But if we forecast out where more people are, I see realistically, is that their expenses, they've been able to kind of live up to their income. And so in retirement, they're not going to drop income and therefore tax brackets substantially. And therefore it's easier to pay a bill with a paycheck while you've got a paycheck to pay it with rather than trying to pay that bill out of your finite amount of retirement assets the day after you no longer have that paycheck. And if we're not going to drop tax brackets substantially in retirement, then we should be working on converting to Roth before retirement. And again, case by case basis. But yes, there's room and reason to consider it. And the last question comes down to your withdrawal strategy.

What are the tax implications of withdrawing from my various accounts? Yeah. Algebra class, right? Order of operations.

Please excuse my dear Aunt Sally. There is kind of an optimal way that this generally goes. Again, not universal because situations might have some specific nuances that require something different. But generally those tax deferred assets are the least efficient and if possible, knock those out of the way first or withdraw from them first. Then you've got your taxable assets.

This is not qualified. This is not IRA nor Roth. These are just the dollars that you have been able to earn and then save without placing into a retirement account of any type. So your investments, your brokerage accounts, cash CDs, things that are not IRA or Roth, that is the second in the order of operations inefficiency. And then finally, the growth on your Roth accounts are the valuable part of the Roth accounts. So the longer that you have to allow those dollars to continue to grow inside of the Roth, the more value you've gotten from the Roth. So the Roth should theoretically be last in line. Now again, nuances. I have seen certain circumstances where people especially are retiring before age 65 but want to keep the taxable income low, have maybe changed that order slightly so that they can afford more affordable health insurance in those donut years.

That may be just one example of a nuance where there's an exception to the order of operations. But this is why we have to go through every situation and help people properly put together that income map, that income plan with their specific order of operations and how to access those accounts. So much to consider. And Peter, I do believe we've done like a separate topic on each one of these questions. So just a reminder to everybody watching that we have a great video library on your YouTube page. But if somebody wants to talk through any of the strategies or questions that we've brought up, what's the best way to reach you? Yeah, give me a call.

Nine one nine three zero zero five eight eight six. And while you are here watching this video, go ahead and like and subscribe and share and all that kind of good stuff. Make a comment. We love to hear from viewers and love to interact and love if you would let us know that you appreciate the content that we're putting out or what you are most interested in and then share it with others that might have those interests. So we always appreciate that. But the big value of this program is that on each episode we reiterate this promotional offer here is that if you would like to get a plan put together, we are happy to do that with you and for you. We put together what we call the optimized retirement plan, and it takes all the things that we've talked about on this channel into account, but applies them to your situation. So looking at income, investments, taxes, health care, legacy, and applying all of the strategies to your situation to try to help you optimize your your financial and retirement future. And if you'd like to take advantage of that, please do give me a call.

Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six. There's also a place on the website rich on planning dot com where you can click a button and schedule a call and talk with us, talk with me or my team, and we'll have a conversation that starts there. So that's rich on planning is what it looks like. It's my last name, Roshan planning dot com. All right, Peter, thank you. Always pleasure. And thank you.

Hey, folks, Peter Roshan here with Roshan planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at nine one nine retired dot com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA, this is the website.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the the the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS's plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings.

So if you have not yet, go to the website nine one nine retired dot com. Run your numbers on the retirement tax bill calculator. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooks own capital management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.