Once again it’s that wonderful time of year where we all get to sit down and try to make our way through the overly complex process of trying to figure out how much money we owe Uncle Sam.
Unfortunately the burden falls hardest on America’s aging population, with more than 74% of all federal income tax revenue being received from those aged 45 or older.
Due to the endless amount of tax laws, deduction requirements and various other tax technicalities, many consumers just take the easy road and stick to the basics, forgoing the effort of researching deductions and seeking professional advice. The problem with sticking to the basics is that you never get a chance to see just how much money you’re losing by not taking the time to optimize your taxes.
If you are in or approaching retirement, you should especially be focusing more on how to reduce your tax liability. Your retirement income adheres to specific rules that can drastically change your tax liability. Because most retirement savings are tax-deferred during the accumulation stage, these funds are subject to taxes once in retirement. Taxes have been historically low since the turn of the century. If federal income taxes rise, the amount of your retirement savings owed to the government also increases.
Our country is in a fragile state right now, and with things heating up with Russia, it’s likely only to get worse. When the United States enters hard times, the tax-payers are the ones they look to for solutions.
One solution available to those in or near retirement is what’s known as a Roth conversion – a tax law that allows you to pay taxes on your retirement savings upfront and avoid having to pay them off in the future. An added benefit to this option is that any growth to your savings post-Roth conversion is all tax-free gains.
To learn more about a Roth conversion, click here. http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000230969
As the baby-boomer generation enters retirement, tax optimization should remain a priority for our aging population.
Below is a list of helpful links bringing you information you should be considering when preparing your finances in retirement.
IRS Publication for Seniors and Retirees http://www.irs.gov/Individuals/Seniors-&-Retirees
Tax Guide for Seniors- http://www.irs.gov/publications/p554/
Tax Tips Every Boomer Should Know this Filing Season- http://www.foxbusiness.com/personal-finance/2014/02/27/tax-tips-every-boomer-should-know-this-filing-season/