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Getting ready to retire? Benefit from advance planning

Midyear 2016

Getting ready to retire? Benefit from advance planning

As you approach retirement age, you will have to manage many risks to secure your well-being. The risk of inflation, volatile markets, and outliving your retirement savings all threaten your nest egg. Taxes will also present a risk to your savings. Here are tips to consider in the years before you retire.

Diversify your savings. Maximizing contributions to tax-deferred retirement accounts, such as IRAs and employer-sponsored plans, can reduce your current taxable income as well as defer the tax on asset growth into your retirement years. But you’ll also want to supplement retirement plan assets with investments in taxable accounts. Having the option to take funds from those accounts allows you to maximize the tax-deferred growth in your retirement plans.

midyear_pg4Consider a Roth conversion. Converting your traditional IRA to a Roth may be a smart move because Roth accounts have tax advantages over traditional IRAs. For example, you’re generally not required to take distributions from a Roth no matter your age, unless the Roth is inherited or is a Roth 401(k). The downside is that you’ll pay current-year income tax on the amount you convert so you’ll need to plan around your expected current and future income tax rate.

Take advantage of tax-free bond income. Bonds issued by state and local government entities generate income that’s free from federal income tax and generally not subject to the 3.8% Medicare surtax. That means purchasing these bonds in your taxable investment account can make sense if you expect high earnings in the years before you retire. As retirement gets closer, revisit your decision. Why? Interest from these bonds is considered in the calculation of whether your social security benefits will be taxed.

Know your social security options. If you’re still working but nearing the age where you could begin to collect social security, a major question is when to start receiving payments. While one goal is to maximize your lifetime benefit, factors such as what other sources of income you can rely on will influence your final decision. In general, the longer you wait — whether that’s until you reach your full retirement age or age 70, when your benefit stops increasing — the more you’ll collect each month.

Once you retire, your savings may have to provide income for a span of 30 years or more. Planning in advance can help you minimize the tax you’ll owe during those years. Give us a call. We’re here to help you prepare now for life after work.

© MC 2016

Philip L. Liberatore, CPA

[email protected]



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