Are you approaching retirement? If so, you may be planning your expenses and developing a strategy to fund them. There are your normal bills and lifestyle costs. In addition, you may face substantial healthcare costs in retirement. Family support could also be a major expense. However, it’s important not to overlook taxes, which can often be a sizable expense for retirees.

Many retirees assume that because they are no longer working, taxes will no longer be a significant expense. That assumption is usually incorrect. You will likely face taxes on a number of different sources of income, from Social Security to retirement account distributions and more.

If you don’t have a plan in place, your tax obligation could threaten your financial stability in retirement. Below are a few tips on how you can plan ahead and minimize the impact of taxes on your budget:


Analyze your tax liability.

The first step is to understand exactly how your income is taxed in retirement. Not all retirement income is treated the same under the tax code. Distributions from traditional IRAs and 401(k) plans are taxed as ordinary income. Roth distributions are tax-free, however, assuming you are over age 59½ and the account has been open at least five years. Annuity income may or may not be taxable, depending on whether the funds are growth or principal.

Even Social Security benefits may be taxable. You can be taxed on as much as 85 percent of your Social Security, depending on your combined income.1 The higher your retirement income, the more tax exposure you face on your Social Security benefits. A financial professional can help you analyze your income sources and estimate your potential tax burden.


Include taxes in your budget.

A budget is a helpful financial tool at any stage of life, but it’s especially useful in retirement. You can use it to make smart purchasing decisions and gauge whether you’re on track with your strategy. Unfortunately, most Americans don’t use a budget. A recent study found that only 41 percent of Americans rely on one.2

If you haven’t used a budget in the past, now may be the time to start. Include taxes as a fixed expense and deduct them from your projected income. That will give you a better idea of how much money you’ll have available to cover your other bills.


Make use of tax-free income.

It’s possible to generate retirement income that isn’t taxable. You can take tax-free distributions from a Roth IRA, assuming you’re over age 59½ and the account has been open at least five years. If most of your assets are in a 401(k) or a traditional IRA, you may want to consider a conversion to a Roth.

Municipal bonds and even life insurance can also be sources of tax-free income. A financial professional can help you analyze your options and develop a strategy.

Ready to plan ahead for taxes in retirement? Let’s talk about it. Contact us today at Trinity Financial. We welcome the opportunity to help you implement a tax management strategy. Let’s connect soon and start the conversation.





Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

Although qualified withdrawals from a Roth IRA are tax free, when converting a Traditional IRA into a Roth IRA, the entire converted taxable amount is reportable as income in the year of conversion.

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