5 Major Tax Areas That Impact Retirees
Taxes affect every stage of our lives in different ways. When you retire, what taxes you owe may change from when you were working. For this reason, it’s a good idea to discuss your tax obligations with a financial advisor in Orlando so that you can fully understand how taxes might impact your retirement and get help where you need it. There are a variety of different types of taxes that you’ll need to think about when planning your retirement.
Depending on the type of retirement account that you have, you may owe taxes on your distributions. Roth IRA and 401(k) accounts, for example, are taxed when you make contributions to them so that when you withdraw from the account, you won’t have to pay taxes because the taxes were already paid. Traditional IRA and 401(k) accounts, on the other hand, are taxed when distributions are made because the funds were pre-tax when they were deposited.
Depending on your financial status, you may be eligible for certain tax credits in your retirement. For example, the Credit for the Elderly or Disabled is available to those who qualify who are older than 65. If you are low-income, this tax credit may benefit you. If you are not, you may not qualify. There are other tax credits that you may qualify for. Ask your financial advisor to help you find deductions, exclusions, and credits that could reduce your tax liability.
If you own your own home, you’ll still have to pay taxes on your property even if you’re no longer working. Some homeowners take out reverse mortgages on their homes for extra income in retirement. Doing this can help you to use your property as income that isn’t taxable. If you’re considering a reverse mortgage, make sure that you discuss all of the implications with your financial advisor before doing so.
Retirement typically means that you’re no longer employed. However, some people retire from full-time work and chose to work part-time in order to supplement their retirement distributions. If you do continue to work in any capacity, you may need to pay income tax. Even in Florida, which doesn’t have a state or local income tax, you would still be liable for federal income taxes. You’ll also want to consider how having an income might affect your retirement distributions or what you qualify for in terms of social security or medicare.
Once you’re retired, you may also want to start thinking about what you want to leave behind for your heirs. Certain taxes may only apply once you’ve reached a certain level of wealth. There may also be both federal and state taxes that could apply to your estate. Make sure you discuss your particular estate’s situation with your financial advisor in order to minimize the taxes that your beneficiaries will need to pay once they inherit your estate.