Now that you’ve retired, you’re transitioning from saving to spending. However, taxes remain one of the largest expenses so smart tax management is essential for preserving your wealth. Pure’s Financial Advisor, Maxwell Hacker, CFP®, AIF®, provides guidance on tax strategies designed to help you keep more of your hard-earned money.
He discusses:
- Understand different accounts
- Required Minimum Distributions (RMDs)
- Tax-Loss Harvesting
Transcript
For retirees, taxes are often one of the biggest expenses you’ll face, and managing them wisely is key to preserving your wealth. The way you save today and the strategies you implement can significantly reduce the taxes you’ll pay over your lifetime. Let’s explore a few concepts and strategies that can help you keep more of your money.
The types of accounts you save into—and the investments you choose—play a big role in determining your tax obligations. That’s why it’s essential to understand the difference between non-qualified accounts, qualified accounts, and Roth accounts. Each has unique tax implications, and how to use them strategically is crucial for a tax-smart retirement income plan.
Next, think about the various sources of income you’ll rely on in retirement. These might include Social Security, pensions, rental income, interest, dividends, or selling assets. Now ask yourself: How will each of these income streams be taxed? Will it be as ordinary income, capital gains, or tax-free? And importantly, how much control will you have over how they’re taxed?
Required Minimum Distributions (RMDs) should be top of mind when tapping your retirement portfolio. If the bulk of your retirement savings is in a 401(k) or related plan, whatever you withdraw, will be taxed as ordinary income. So, if you don’t need this money to cover your living expenses, consider depositing the funds into a taxable brokerage account, where it could potentially continue to grow.
In your brokerage accounts take a look at selling investments that have lost value. Selling at a loss allows you to use all the funds for living expenses because you’ll owe no taxes. Also, by using a strategy known as tax-loss harvesting, you can offset any capital gains with your capital losses and, if your losses exceed your gains, you can $3,000 to offset ordinary income in a given year.
Consider delay taking Roth IRA and Roth 401(k) funds for as long as possible so that the investments can potentially to benefit from continued compound tax-free growth. This can be done since Roth accounts aren’t subject to RMDs and withdrawals are tax free.
Answering these questions can help design a retirement income strategy that minimizes taxes and maximizes your financial security. If you’re unsure about finding the right balance, you’re not alone! That’s why Pure Financial Advisors can help. We offer a complimentary tax analysis to review your current tax path and explore strategies to improve your tax efficiency.
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IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
