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Planning for taxes in retirement

On Behalf of | May 31, 2016 | Income Taxes

Georgia residents who are planning their retirements often forget to take into account taxes. Even people who have put a lot of thought into building their retirement portfolios have no idea what they will owe the IRS once they start making withdrawals from their savings. A retiree that is taxed at 15 or 25 percent will have a much more difficult time making money last than a retiree whose income is not taxed.

There are some financial strategies that can help a person to avoid this retirement issue. Before developing a plan, it is crucial for people to determine what tax bracket they currently fall under and what tax bracket they may be entering once they retire. It’s also important to note that the amount of adjusted gross income will affect the percentage of their Social Security benefit that is taxable.

People may be able to lower the taxes that they pay during their 70s by making withdrawals in their early retirement years. They could also save money on taxes by making contributions to a Roth IRA account.

An attorney can help clients to go over their retirement portfolio and find ways to make it more tax efficient. Because their income tax bracket may change after retirement, an attorney may help them to plan for the change by distributing assets between taxable accounts and tax-deferred accounts. Unfortunately, some people rack up tax bills that they cannot afford to pay, and in some cases an attorney may help them to reach an appropriate settlement with the Internal Revenue Service through an offer in compromise.