Mapping Your Tax Future
*As Published in Southlake Style Magazine, June 2021 Edition
“Taxes are a lifetime roller coaster, often being the highest later in retirement.” — Stewart Fields
Most people look at retirement accounts in terms of the money they can earn rather than the taxes they’ll have to pay. But by mapping your assets and establishing a tax-efficient withdrawal strategy, you can pay reduced taxes, earn more money and potentially add up to six years of income to your retirement portfolio.
Knowing which type of retirement income you have helps you better understand how they’re taxed differently. For instance, 15-100% of your social security income can be received tax free. Joint savings and brokerage accounts can be taxed at a lower rate, and money taken out of traditional retirement accounts could be your biggest tax liability. Each of these accounts have pros and cons from a tax standpoint. When you understand what they are, you can position your assets among them, reduce taxes and earn returns without taking on additional market risk.
It’s also important to understand which tax bracket you belong to and how it affects how much you owe. Your lowest tax bracket years are usually during early retirement, while your highest usually occur when your required minimum distribution (RMD) kicks in at 72 and forces you to take more money out of your account. Having a good strategy in your low-bracket years helps reduce your taxes during your high bracket years down the road. With proper planning, you can lower your future taxes, Medicare premiums and the amount your social security is taxed.
And when it comes to your RMD, there are several techniques you can use to minimize its effects. If you make charitable donations, contribute directly from your retirement account to fulfill all or a portion of your RMD. If you implement a strategy now that addresses future tax liabilities, you’ll be on your way to a well-rounded retirement plan.
OpenAir Advisers can make sure you are better prepared for what’s ahead. If you have questions or would like to know more, call 214.233.6059 or email Stewart@OpenAirAdvisers.com.
Advisory services offered by OpenAir Financial, LLC, a registered investment advisor in the state of Texas. Insurance products and services are offered through OpenAir Advisory, LLC, an affiliated company.