Retirement is an exciting time! But what about taxes? The first couple years of retirement, there will be a transition from earning W2 wages to taking retirement income. It’s taxed differently, especially when you take out Social Security. The first year you receive Social Security you should meet with a tax professional so you understand how it will be taxed. The first couple transition years, you may end up paying thousands in taxes that you didn’t have withheld. You can avoid that by doing some tax planning six months ahead of time.
Is Social Security Taxed?
Sometimes it is taxed. If you have a lot of other retirement income, it could be taxed up to 85%. If you don’t have any taxes withheld, you can get hit with a big tax bill.
Sources of Income
When you retire, you may have Social Security, Pension, 401(k), IRA. Talk to your tax professional about how much you need, so you can plan for the taxes, and plan for saving, for a big purchase like a car, or for house remodeling and repairs.
Roth vs. Traditional
Roth has already been taxed; traditional has not. If you have a lot of Roth, you don’t have to worry as much about taxes. If you have mostly Traditional, you may end up owing a lot of taxes. If you do tax planning before you take that first retirement year, you’ll be in a much better place.
At 73, the government is going to require that you take a certain amount of money. You need to find out that amount before it happens so you can properly plan.
If you’re in or near Erie, PA, give me a call to set up a meeting! 814-636-0205