Between social security benefits, pensions, and IRA/ 401(k) plans, you’re likely aware of how much money you have saved for retirement. But do you know how much of that money will be taxed?? Because your after-tax income will affect how much money you really have to live on, this is an extremely important question to have answered. The financial advisors at Maggi Tax Advisory & Financial Group explain the basics of paying taxes during your retirement years.
Taxes and Planning for Retirement
Understanding how taxes will affect your retirement income can help you consider ways to minimize your tax burden and maximize your retirement income. Factors that will determine your tax bill include your filing status, the sources of your retirement income, and the total amount of income you receive each year.
Still working? If your after-tax income currently seems inadequate, you can estimate how much more you will need to save before you can retire.
Already retired? You may need to do some additional planning to avoid running out of money.
If you are actively planning for retirement or have already retired and need to speak to a financial planner, call Maggi Tax Advisory & Financial Group at our Hillsborough office at (813) 850-0131 and our Pinellas/Pasco office at (727) 493-7295.
Taxes and Social Security Benefits
If Social Security is your only source of income, it will be too low to be taxable. However, depending on other sources of income (wages, salaries, tips, interest, dividends, IRA/401(k) distributions, pensions, and annuities) and your filing status, up to 85% of your Social Security benefits may be taxable.
The level of your “combined income” determines the portion of your Social Security benefits that is taxable:
- $0 to $24,999 – No tax
- $25,000 to $34,000 – Up to 50% may be taxable.
- More than $34,000 – Up to 85% may be taxable.
Married, Joint Returns
- $0 to $31,999 – No tax
- $32,000 to $44,000 – Up to 50% may be taxable.
- More than $44,000 – Up to 85% may be taxable.
Married, Separate Returns
- $0 and up – Up to 85% may be taxable.
If you continue to work after receiving Social Security, both Social Security and Medicare taxes will be withheld from your pay if you are an employee, and if you are self-employed, you will have to pay these taxes directly.
Common Tax Adjustments
At Maggi Tax Advisory & Financial Group, we offer strategies on how to minimize your tax bill to maximize your retirement income. Common adjustments to gross income include:
- HSA (health savings accounts) contributions
- Deductions for IRA/401(k) contributions *Distributions from 401(k) and traditional IRA accounts are generally taxable. Distributions from Roth IRAs are tax-free.
- Student loan interest deductions
- Contributions to self-employed retirement plans
Save Money with Maggi Tax Advisory & Financial Group
The bottom line? Unless your taxable income falls at or below the standard deduction level every year, you will probably pay taxes during your retirement years. BUT, how much you pay is another story.
Maggi Tax Advisory & Financial Group can help you find ways to minimize your tax burden! To learn more about our financial services, please call our Hillsborough office at (813) 850-0131 and our Pinellas/Pasco office at (727) 493-7295.