Tax efficiency tips for your retirement

Written by V. Raymond Ferrara, CFP®

On March 16, 2021

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One of the major benefits of saving for your retirement through a qualified retirement savings account is that your money can grow tax-free. However, sooner or later, you will be responsible for paying taxes on your wealth, such as paying taxes on a withdrawal from your retirement account once you have reached your eligible retirement age.

Reducing overall tax liability is a priority for many retirees looking to get the most out of retirement. Take a look below at some tips to keep in mind for getting the most out of your retirement funds.

Retirement tax efficiency tips

  • Diversify — Have you been dumping all your retirement savings funds into one account? It is great that you are saving, and maybe this is the correct strategy for you, but it is usually ideal to diversify your retirement accounts, so you can take advantage of each of their benefits.

    For example, by having both a 401(k) and a Roth IRA, you gain different advantages. With the 401(k), you get to contribute pretax dollars and grow your wealth free of tax, but you do pay taxes when withdrawing. With a Roth IRA, you contribute with post-tax dollars, but you get to make tax-free withdrawals.

    You can balance your withdrawal strategy during retirement to minimize your tax liability.
  • Be patient — Your money grows tax deferred in most retirement accounts. If you do not need it right away, leave it there so it can continue to grow. This is also where having a diversity of retirement accounts comes in. You can leave one untouched for a few more years to continue growing while you only tap funds from your others.

    Additionally, if you have enough saved up in your personal retirement accounts to meet your retirement goals, you may want to hold off on withdrawing from your Social Security. Delaying your Social Security withdrawals from eligible age to your full age increases your Social Security benefits received.
  • Remember your RMDs — Short for required minimum distributions, your RMDs are how much you are required to withdraw at a minimum from specific retirement accounts once you have reached eligible retirement age. Pay attention to the RMDs of your retirement accounts to ensure you are compliant and can avoid penalties for failing to meet them.

Talk to a ProVise CFP® professional about tax efficient strategies for your retirement

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about tax efficiency in retirement? Contact ProVise today to schedule a complimentary consultation.

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