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https://assets.credkeeper.com/images/article/ar-1653486450.pngWith today’s complex rules and regulations, taxes in retirement can be a nightmare for most people. Even the most experienced investors are oblivious of the myriad tax traps in 401(k)s, IRAs, and other retirement accounts. As a result, it shouldn’t come as a surprise that retirees aren’t always up to date on every aspect of the tax code and, as a result, overpay taxes. Here are 8 questions that retirees frequently get wrong about taxes in retirement to help you assess your current tax knowledge.
1. Question: Is your tax rate going to be higher or lower when you retire than when you were working?
Answer: It is debatable. Many people make retirement plans based on the assumption that they will be in a lower tax bracket once they retire. However, this isn’t always the case, as several factors can push you into a higher tax bracket.
2. Question: Is it true that Social Security benefits are taxable?
Answer: Yes, you can. Federal income taxes might apply to up to 85% of your Social Security benefits, depending on your “provisional income.” Some states also tax social security.
3. Question: Is it possible to contribute to an IRA after retiring?
Answer: Yes, you can. You can contribute to a regular or Roth IRA if you earn an income. Traditional IRA contributions used to be limited to those over the age of 70 ½, but that requirement was lifted a few years ago.
4. Question: Is it true that Roth IRA withdrawals are tax-free once you retire?
Answer: Yes, you can. Unlike its 401(k) and regular IRA cousins, funded with pretax cash, Roth IRA contributions are taxed upfront, so withdrawals are tax-free once you retire.
5. Question: Is it tax-free to roll over a 401(k) plan to a standard IRA after retirement?
Answer: Yes, if done correctly. A tax-free rollover from your 401(k) plan to a standard IRA can be done. First, you can take money from your 401(k) account and deposit it directly into an IRA.
6. Question: Is the income you get from an annuity you own taxable?
Answer: If you bought a retirement annuity, only the portion of the payment representing your principal is tax-free; the rest is taxable.
7. Question: When must traditional IRA and 401(k) account holders begin taking required minimum distributions (RMDs)?
Answer: At 72 years old. However, it could change to 75 soon.
8. Question: Will you have to pay taxes if your spouse dies and you receive a large life insurance pay-out?
Answer: No, there isn’t. You’ve got enough on your plate at this point, so it’s comforting to know that life insurance proceeds from the insured person’s death are not taxable.
Contact Information:
Email: [email protected]
Phone: 2129517376
Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].