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Here’s the Thing About Taxes in Retirement: The Rules Change
Source:
nola.com
- Aug 26, 2016
Even if you’ve done all your own taxes throughout your working life, it’s still a good idea to turn to a professional when you retire. Why? Because the rules are different in the golden years when your income is typically lower. You may also be drawing out of tax-deferred accounts and on assets loaded with capital gains and/or losses.
A professional can help you nab every potential deduction and tap accounts in accordance with the laws to help you avoid a bigger-than-necessary tax bite from the IRS. The rule of thumb is to draw from your taxable assets first, then the tax-deferred, leaving the Roth Individual Retirement Accounts (IRAs) as the last resort and the potential go-to fund if you have a heavy-income year, for example, because you sold property.
And remember this: your income may be lower, but your tax bracket may not. The IRS looks at adjusted income, not gross income, and you may no longer have the same tax credits you did when you were gainfully employed. You also may not be spending as much daily on potential deductions—think lunch, transportation, software, etc.—that you did while employed. Sure, that’s less expenditure but also fewer deductions.
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Category: IRS
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