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By Mark McGregor, CRPC®, CFF®

Retirement is the grand prize. It’s your time to unwind, pursue your passions, and savor the rewards of your hard work. However, if you haven’t properly included one essential component—tax planning—the dream of a comfortable retirement can quickly disappear. Neglecting the tax consequences of your assets and retirement income can seriously reduce your savings and jeopardize your financial stability.

In this article, I share insight into the power of tax planning and how it can be the key to pursuing the comfortable retirement you’ve always wanted.

The Complicated Retirement Tax Landscape

Before I share specific tax-planning strategies, let’s take a look at the elements that contribute to your tax liability in retirement.

Typical sources of retirement income include:

• Pensions: The majority of pension income is taxed as regular income.
• Investment income: Interest, dividends, and capital gains from investments may all be subject to taxes. How long you owned the asset and the type of income you received affects the tax rates.
• Social Security: Depending on your total income—which includes your adjusted gross income, non-taxable interest, and half of your Social Security payments—parts of your payout may be taxable.
• Traditional 401(k) and IRA distributions: These are taxed as regular income in retirement. Withdrawals are subject to income tax, even if contributions were tax-deferred during your working years.
• Roth 401(k) and Roth IRA distributions: The appeal of Roth accounts is that they allow for tax-free withdrawals when you retire. Contributions are subject to taxes up front, but eligible payouts are tax-free, making them an effective tax-planning tool.
• Annuities: The taxable part of annuity payments is calculated based on the annuity type and how it was funded.

Proactive Tax Planning

The annual chore of filing taxes is only one aspect of tax preparation. To reduce your tax liability during your retirement years, you must make proactive, continuous decisions about your income, investments, and retirement accounts.

Proper tax planning can strengthen your retirement in the following ways:

• Creating a sustainable income stream: Tax planning helps you create a reliable and sustainable income stream throughout retirement. By understanding the tax implications of different income sources, you can structure your withdrawals to reduce taxes and maintain a consistent cash flow.
• Maximizing after-tax income: Effective tax planning helps you keep more of your retirement income. By strategically managing your withdrawals and investments, you can mitigate the tax burden and generate a bigger net income.
• Reducing stress and uncertainty: Knowing you have a solid tax plan in place can help you feel confident about your future and reduce financial stress during retirement. Proactive tax planning provides a clearer picture of your income and expenses, allowing you to focus on enjoying your retirement years.
• Maintaining your retirement funds: Over time, taxes can drastically reduce your retirement funds. You can sustain your retirement savings and safeguard your cash.
• Leaving a legacy: Proper tax planning can help you keep more of your assets to give to your loved ones. By reducing estate taxes and strategically managing your wishes, you can pursue a bright financial future for your heirs.

Tax Planning Strategies for a Comfortable Retirement

Now we can explore the details of tax-planning strategies that help you enjoy a comfortable retirement.

• Charitable giving: One tax-efficient approach to both give back and also lessen your tax burden is to donate valued assets straight to a charity.
• Strategic withdrawals: To reduce your total tax obligation, carefully schedule your withdrawals from various retirement funds. Take into account your age, other sources of income, and required minimum distributions (RMDs).
• Estate planning: Consult with an estate planning professional to verify that your assets are dispersed according to your wishes and to avoid estate taxes.
• Tax-efficient investing: Opt for investments that generate tax-advantaged income like municipal bonds, which are typically exempt from federal taxes.
• Roth conversions: Another effective tax planning strategy is to transfer money from a traditional IRA or 401(k) to a Roth account. While you do pay taxes on the conversion, qualified withdrawals in retirement are tax-free. If you anticipate being in a higher tax bracket in retirement, this technique is very effective.
• Consult a qualified financial advisor: Lastly, I want to emphasize the importance of working with a professional financial advisor. A financial advisor can provide customized guidance and assist you in creating a thorough tax plan that’s aligned with your specific needs and goals.

Don’t Wait, Start Planning Today

The sooner you start planning for retirement taxes, the better. Get started today by consulting a professional financial advisor.

With so many wealth management firms in the Denver area, it can be hard to know who to turn to. Clients rely on us to help them take a level-headed approach. As your dedicated financial advisory team, we strive to help you stay ahead of life's curve balls so you can plan with more confidence.

At McGregor Wealth Management, we can develop a personalized strategy to help you unlock the comfortable retirement you deserve.

About Mark

You probably have people helping with your investments, legal matters, and taxes…but who makes sure you are getting all the benefits you’re owed? I do. My name is Mark McGregor. I scour federal, state, local, and corporate databases to find benefits you are owed but NOT receiving. That’s what I do. Yes, we do all the other things as well, such as providing investment management, tax planning, long-term care planning and other services. Those are the big things, but I also help to make sure the little unknown things are taken care of for you. It’s also making sure that the little things don’t become big problems for you down the road.

I got into this business to fill a void I noticed after the passing of one of my friends’ parents who was experiencing hardship due to poor planning. I saw the issues they had to deal with firsthand, and this left me feeling that there were lots of financial salespeople, but not many true advisors making sure people were getting all the available benefits they had worked so hard for. I use the skills I gained from my bachelor’s degree from California Polytechnic State University and 24 years of industry experience to get all the benefits my clients are owed. I live in Castle Rock, and we are actively involved in sports and charitable organizations, such as Unbound, which provides personal attention and direct benefits to children, youth, the aging, and their families so they may live with dignity and achieve their desired potential and participate fully in society.