Tax and Retirement Planning in South Florida

As retirement advisors, we work closely with CPAs and estate lawyers to provide our clients with retirement planning advice that gives them the best chance of achieving their retirement goals and legacy planning for future generations.

  • Generate steady income in retirement.
  • Minimize your exposure to market risk.
  • Maximize your tax savings.

The third item is particularly important because, although you may leave behind a lot of things when you retire, your tax burden isn’t one of them. In fact, without proper income tax reduction strategies, they can potentially be an even bigger burden in retirement. As financial advisors, we’ve found that the keys to avoiding that problem are awareness and planning.

Let’s talk about how different sources of retirement income are taxed. If your only source of retirement income is Social Security, you probably won’t pay any taxes. That’s because Social Security income, by itself, is tax exempt. But obviously, Social Security probably won’t be enough. You’ll need other sources of income, which means a portion of your Social Security income likely will be taxed. As for how much, it varies, but it can run as high as 85%.

For example, you’ll probably pay that 85% if you get large monthly income payments from a pension. With the pension itself, most are funded with pre-tax income. If that’s the case, it means all your pension income is taxable each year. However, if a portion of your pension was funded with after-tax dollars, then only a portion of the income will be taxed.

For investment income from interest, dividends, or capital gains, you’ll have to continue paying taxes on that just like you did before you retired.

And, what if your strategy is to systematically sell investment shares to generate retirement income? In that case, each sale would also generate a long- or short-term capital gain or loss, which you would need to report on your tax return. In most cases, this is a bad strategy.

Required Minimum Distributions

Of course, the main source of retirement income for most people, other than Social Security, is the money they have in their 401(k)s and IRAs. Those accounts are tax-deferred until you start taking withdrawals, which the IRS forces you to do starting at age 73 to satisfy your required minimum distributions (RMDs). Your RMDs are unavoidable even if you have plenty of income from other sources.

Through our Tax and Retirement Planning services, we can help you implement tax saving and reduction strategies that can help to minimize the amount of taxes you pay when the time comes to start taking withdrawals from your retirement accounts.

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