You probably know how much money you have saved for retirement.
But do you know how much money you’ll owe in taxes when you’re retired?
“If you don’t know how much money you’ll owe in taxes on your savings and investments – you really don’t know how much you have to spend in retirement,” say financial advisors Ryan Thacker and Tyson, president and CEO of B.O.S.S. Retirement Solutions. “And this is the most important number you need to know.”
The Thacker brothers have helped more than 50,000 families across the Wasatch Front plan for a better retirement. And year after year, they warn that most people have overlooked or underestimated the amount of taxes they’ll owe in retirement.
“Most of your retirement income won’t come from just one source,” Tyson says. “It will come from IRAs, 401Ks, Social Security and other investment income, such as interest, dividends, and real estate. The tricky part is each of these sources are taxed differently. And if you’re not careful, you could needlessly overpay your taxes to the tune of tens of thousands of dollars every single year.”
Why smart tax planning can pay off big in retirement
Most people associate paying taxes with April 15. But by this point, it’s too late to save any meaningful money.
“When you file your taxes every year on April 15th, you’re just reporting history,” Tyson says. “But if you want to reduce your taxes in retirement, you need to implement some forward-looking tax planning strategies. This is where you can often find significant tax savings. Not for just one year – but for the rest of your life.”
Believe it or not, today’s tax rates are at some of the lowest levels in 40 years – thanks in part to the Trump-era tax cuts, which were made “permanent,” but are not guaranteed to last forever.
“At the same time, our national debt is at all-time highs of more than $38 trillion. Many economists believe this is unsustainable. And at some point, something has to give. And the only logical way to reduce this debt is by raising taxes.” Ryan adds. “It’s not simply a question of if, but when.”
The Thacker brothers are encouraging their clients to take advantage of strategic tax planning opportunities now that could help them realize a windfall of tax savings in retirement.
The most taxed accounts in retirement
If you have a significant portion of your retirement savings in traditional IRAs or 401Ks, you’re not alone. But every dollar you withdraw from those accounts in retirement will be taxed as ordinary income.
“Your IRAs and 401Ks are basically IOUs to the IRS,” says Ryan. “If you do not have a carefully coordinated tax strategy for your retirement account withdrawals, Social Security and other investment income, you could needlessly overpay your taxes by tens of thousands of dollars every single year.
Traditional IRAs are the worst possible asset for retirement savers and future wealth transfers.–CNBC
That’s why the Thackers often recommend strategically converting portions of your traditional IRA or 401K into a Roth. A Roth conversion lets you pay taxes now, while tax rates are “on sale.” And you’ll never pay taxes on the money again. Not on the investment growth – and not on your withdrawals.
“Converting your traditional IRA or 401K to a Roth could help you significantly reduce the total amount of taxes you’ll pay for the rest of your life,” says Tyson. “Plus, Roths are not subject to required minimum distributions (RMDs), which gives you more control over your taxes in retirement and makes it easier to pass along this money to your estate.”
The Wall Street Journal recently noted that Roth conversions “may generate enough tax savings to make retirees’ portfolios last up to seven years longer.”
Social Security and the ‘Tax Torpedo’
Another big surprise for many retirees is how Social Security benefits are taxed. You could pay taxes on up to 85% of your benefits.
“Social Security and IRA and 401K withdrawals are taxed as ordinary income. And when you add these two income sources together, you could trigger what’s known as the ‘Tax Torpedo,'” says Tyson, “where every extra dollar of income makes even more of your benefits taxable.”
That added income could also raise your Medicare premiums, capital gains taxes and reduce certain deductions or credits.
“The best move is still to take control of what you can,” Ryan says, “and that means being strategic with how and when you withdraw income.”
That’s why coordinating your IRA withdrawals, Social Security timing, and Roth conversions could help you reduce or even eliminate taxes on your benefits.
Photo: pikselstock – stock.adobe.comOther commonly taxed sources of retirement income
The truth is, nearly every source of retirement income, from investments to pensions, comes with its own set of tax traps that can quietly erode your savings over time. Other common sources of taxable income include…
Dividends and Investments: Qualified dividends are taxed at capital gains rates (up to 20%), while non-qualified dividends are taxed as ordinary income up to 37%. As taxes rise, both could become more expensive.
CDs and Money Markets: Interest from CDs, savings, and/or money market accounts are taxed as ordinary income.
Annuities and Pensions: Annuities can offer lifetime income and protection from market volatility. However, qualified annuities (funded with pre-tax dollars) are taxed as ordinary income when you take withdrawals, and most pensions are, too.
Discover how much money you could save in taxes when you retire
If you’ve saved more than $300,000, chances are you’ll have a tax problem in retirement. So, if you’d like to explore your options and learn how much money you could potentially save, BOSS Retirement Solutions offers a customized Retirement Tax Analysis.
There’s no cost for this customized analysis – even if you’re not a client.
“This is just an opportunity for you to see how much money you could pay in taxes going down the path you’re on now, versus how much you could potentially save by taking advantage of some of these tax planning strategies,” said Ryan.
“There’s zero pressure from us. It’s your choice. But we’ve made this a quick and easy process, and you might be surprised to learn how much money you could save. It’s not uncommon for us to uncover 6-figures in tax savings throughout retirement,” added Tyson.
To schedule your free, customized analysis, just call (801) 990-5055, or click here.
Tyson Thacker and Ryan Thacker are the CEO and President of B.O.S.S. Retirement Solutions. They are a five-time winner of Utah’s Best of State Award and have six offices located throughout the Wasatch Front.
This is for illustrative purposes only, results may vary. Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. BOSS submitted applications and paid application fees to be considered for the Utah Best of State for Retirement Planning awards. The award results were independently determined by the awarding organization’s criteria (https://www.bestofstate.org/about.html) and the information BOSS provided in the applications. BOSS received the Utah Best of State award in 2019, 2020, 2021, 2022, and 2023. Our firm is not affiliated with the U.S. government or any governmental agency. Marketing materials provided by Infinity Marketing Services.