Taxes are on the minds of many as we just passed the 2019 tax deadline. Unfortunately, many retirees every year fail to properly account for taxes when deciding things such as budgets, withdrawal rates, and whether or not they have the flexibility to make larger purchases. So, what are a variety of techniques that can be employed which help to limit the amount of taxes you pay in retirement and keep more of your hard earned money in your wallet?
Consider Relocating To States With Lower Taxes
High cost of living areas often breed some of the highest salaries that allow many to retire comfortably. Unfortunately, these areas also often breed some of the highest taxes in the country. Consider moving to a more tax friendly state so that you will be able to enjoy more of your hard earned dollars throughout your golden years.
Continue To Maintain A Budget
Many of those who are fortunate enough to retire were able to do so by maintaining a strict budget over the years. While retirement means you’ll no longer have to punch a time card, it does not mean you should no longer play an active role in your finances. Budgets are perhaps more important during retirement than they are during your working years as they may need to be adjusted based on the performance of your investments.
Consult A Tax Professional
Filing your taxes post retirement can look very different than it did pre-retirement. This is because your main sources of income have drastically changed. Whereas you were once drawing your money from a weekly or monthly paycheck, you may now be withdrawing from a variety of accounts such as a 401(k), IRA, annuity and even Social Security. Each of these retirement vehicles contains its own subsection within the federal tax code and is taxed at varying rates based on many different factors. Rather than struggling through the monotony of tax code, simply place your trust in a certified tax professional that does this for a living. This way, you can rest assured everything is filed correctly which can help you avoid paying penalties over time.
Don’t Forget About Quarterly Estimated Taxes
One of the most frequent mistakes that some newly retired people make is failing to file quarterly estimated taxes. This is largely because, when you are working, taxes are taken out of every paycheck for you by your employer and filed on your behalf. This lulls some recent retirees into the false sense of security that can have them stuck with a large penalty when they attempt to file annually by the regular April 15th deadline. Some retirees should estimate the taxes they are liable for once every quarter so as to satisfy their federal, state, and local tax obligations. To keep you from forgetting, either set a quarterly reminder on a phone or computer or, if you care to keep your schedule by hand, make a note in your calendar at least two weeks prior to each quarterly deadline. The quarterly deadlines can all be found on the website of the Internal Revenue Service.
Regardless of your current tax situation, retirement should be something that is celebrated. Stressing is something that should be left behind with your working years. BY properly planning to address any and all tax liabilities that may pop up in retirement, you can be better prepared for what’s to come and pay the minimum necessary taxes so that your hard earned money doesn’t go to waste.