It would be great if retirement also meant retiring from the tax man but, unfortunately, this is not the case. Here are three areas where you need to be aware of the tax liabilities concerning your retirement savings.
Deferring your taxes on these accounts is smart since, typically, you will be in a lower tax bracket when you retire and need to withdraw these funds. One thing to keep in mind is the IRS requires you to withdraw certain amounts by the time you reach 70.5 and every year following. IRA Roth accounts are after-tax deposits so no worry there. The IRS still requires you to withdraw certain amounts by age 70.5 and every year after or face a penalty. The penalty can be up to 50%.
Investing in municipal bonds is a great way to avoid taxes. The interest will grow tax-free. The income from municipal bonds, however, is part of that tax-free income that can be included when calculating taxes on your Social Security benefits.Taxes can be a complicated subject to get a handle on. Consider consulting with a financial planner to help you determine the best route to take with your retirement savings and taxes.