Navigating Taxes in Retirement: What You Need to Know

Your golden years should be spent pursuing hobbies and spending quality time with friends and loved ones—not wrestling with the IRS. But the unfortunate reality is that taxes don’t vanish simply because you retire.

Here are some things you should know about retirement income taxes—plus strategies that might help minimize your tax burden and maximize your retirement savings.

Prepare to Pay Social Security Taxes

Many aging adults are surprised to learn that social security benefits are not guaranteed to be tax-free. Roughly 40% of seniors must pay federal income taxes on their benefits. Whether your benefits are taxable depends on a few factors:

For individuals filing a federal tax return as an “individual”:

• If your total income is between $25,000 and $34,000, up to 50% of your benefits may be taxable
• If your total income exceeds $34,000, up to 85% of your benefits may be taxable

For married couples filing jointly:

• If your total income is between $32,000 and $44,000, up to 50% of your benefits may be taxable
• If your total income exceeds $44,000, up to 85% of your benefits may be taxable

For married individuals filing separate returns:

• You will likely pay taxes, regardless of income level

Some Medical Care Expenses Are Tax-Deductible

Understanding deductible medical expenses can put you at a serious advantage when it comes to retirement.

While Medicare helps cover many healthcare costs, retirees should be aware that they can potentially deduct a range of medical expenses that exceed 7.5% of their gross income. These expenses include:

• Prescriptions
• Medical transportation
• Hearing aids
• Dental care
• Eyeglasses
• Admission to medical conferences covering your chronic ailment
• Insurance premiums for long-term care

Build a Diverse Investment Portfolio

Want more control over your tax situation when you enter retirement? Then it’s time to diversify your savings across different accounts.

Withdrawals from Roth 401(k)s and Roth IRAs, for example, can be federally tax-free when certain conditions are met. They also don’t require minimum distributions, which gives you more flexibility in managing your annual income.

Let Your Tax-Free & Tax-Deferred Accounts Grow

In some cases, delaying withdrawing from accounts like 401(k)s and IRAs is advantageous. The longer these accounts grow tax-deferred or tax-free (in the case of Roth accounts), the more you can benefit from compound growth.

Don’t Jump Tax Brackets

Selling a business or using investments for a significant expense like a home renovation can produce “income bumps,” pushing you into a higher tax bracket. This could:

• Increase the amount of Social Security benefits that are taxable
• Cause your Medicare premiums to increase

If you can’t avoid the income bump, consider changing the order in which you withdraw from your retirement accounts, using tax-free income sources during high-income years.

Confidently Take on Taxes With Help From Shared Vision Wealth Group

Navigating taxes during retirement involves many moving parts. Turn to Shared Vision Wealth Group for assistance with all of it. We'll review your retirement accounts, create a comprehensive financial plan, and help you comply with all withdrawal requirements. Contact us today!