Tax Planning

Uncle Sam Is Coming

When retirement planning, one of the most important tax factors to account for seems obvious at first glance.

However, it is easy to forget: taxes.

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What is retirement tax planning?

Tax planning in retirement is a series of steps that you can take to manage your retirement investments in the best way possible. This helps ensure that you are able to gain the most from your retirement investments before, during, and after retirement. The following are some common retirement tax planning strategies:

- Roth IRA Conversion Ladder: This retirement tax planning strategy uses a combination of Roth and non-Roth retirement accounts to minimize the amount of taxes you pay over time.

- Tax Gain Harvesting: The idea behind this retirement tax planning strategy is to harvest long term capital gains, which you can then use for retirement income.

- Retirement distributions: Your retirement distribution options are one of retirement tax planning strategies that can help you manage your retirement income.

What Does A Retirement Tax Planner Do?

Retirement tax planners are there to help you encourage retirement savings, retirement planning, retirement tax planning, or how to keep Uncle Sam out of your pockets.

They often use various retirement accounts to reduce their client's taxes during retirement. These account types include, but are not limited to:

- Tax-deferred accounts

- Roth accounts

- Taxable Accounts

- Health Savings Accounts

Taxes, Savings, And Retirement must all be considered in retirement tax planning
An infographics explaining different types of retirement accounts

What kind of retirement accounts are there?

- There are a few retirement plans that retirement planners can use to decrease a person's retirement taxes.

These retirement account types include:

• IRAs – Individual Retirement Accounts, Traditional and Roth IRA's

• 401(k) – These retirement accounts can be rolled over into traditional or roth IRA's if not tapped before the age of 59 ½. However, after this age they must remain as a 401(k). They come in two flavors: Money Purchase and Profit Sharing Plans. Employers offer these plans as retirement benefits for their employees.  In order to qualify for a defined benefit plan an employee must work at least 1000 hours during a period of measurement which is usually a calendar quarter.

• 403(b) – These retirement accounts are retirement plans offered by public education employers, such as school districts and colleges. They tend to work like a 401(k).

• 457 Plans – These retirement plans offer retirement benefits for employees of state and local governments and tax exempt organizations, such as not-for-profit hospitals and universities.

• Defined Benefit Plans – Is the retirement plan that provides a retirement benefit that is definitely determinable based on employee's years of service and compensation history with his or her employer. The retirement benefit may be stated as an exact dollar amount (a pension), or it may be defined as a percentage of final average pay. An who starts working for an organization immediately after retirement cannot receive benefits through a defined benefit retirement plan.

• Defined Contribution Plans – Is the retirement plan that provides retirement benefits based on an employee's retirement account balance which is put aside by pre-tax payroll deductions over the course of his or her career. The employee's retirement benefit will depend upon how much has accumulated in his or her retirement account at retirement, and also how well those assets performed during those years.

• Cash Balance Plans – These plans have been established to provide retirement income for employees as a result of their employer's contribution to a cash balance formula retirement savings plan. In cash balance formulas, any deficit between contributions made on behalf of an employee and the promised retirement benefit becomes the responsibility of that employee.

The retirement tax planners at The Retirement Planning Institute help you create a holistic tax plan that accounts for income planning, social security planning, estate planning, IRA planning, and healthcare planning, amongst others.