6. Plan for Taxes Now and What They Might Be
Taxes can be one of the biggest expenses in retirement, especially if your household income is high. It’s prudent to be mindful of your tax situation as you plan for retirement. Taxes might well go up in the future, due to growing government debt loads from the coronavirus economic relief efforts and government spending from prior fiscal years. All of your traditional retirement plan distributions from IRAs and employer-sponsored qualified plans are taxed as ordinary income. That means that they will be taxed at your top marginal tax rate.
If you work another job during retirement, then you will have payroll taxes for that income as well. We advise talking with a financial professional to see what you can do to reduce your tax bill. Say you have a year coming up where your taxable income will be lower than usual. Then that could be a good time to convert one or more of your traditional IRAs or qualified plans to a Roth account.
So, as you can see these first 6 items will help you start planning for a really strong retirement. The most important things I can tell you is that you cannot start too soon, and an annual review is critical to the success of your plan. Contact me for questions about planning your retirement lifestyle.
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