What to Consider When Reducing Tax Impacts in Retirement

Looking towards your retirement, you need to think carefully about not just the expenses you might need to pay, but how taxes can impact that landscape. Taxes could reduce the size of your estate that you intend to leave behind for heirs, but they could also influence your overall financial picture.

Investment earnings can be hit hard in your older years when it comes to taxes. An important goal of proper investing is usually maximizing your after-tax returns. Different investments and different kinds of accounts can be taxed differently, which means it is important to consider how you are thinking about the overall growth of your portfolio and the potential tax implications.

Many retirees have established the accounts that are a combination of tax deferred, tax free and taxable. If all of these accounts were taxed the same, then the investor would have no preference into the order in which they would be drawn down.

Because these different kinds of accounts, however, are subject to different types of tax rules and rates, a proper withdrawal sequence is especially important. It is usually recommended, for example, that you withdraw from accounts where required minimum distributions, also known as RMDs, are required.

The second place to tap for distributions are cash flows from taxable accounts followed by tax deferred accounts and then tax free or Roth accounts.

For more information about how your retirement years can be impacted by other unexpected expenses, such as health care expenses, set aside time to speak with a dedicated estate planning lawyer so that you have a comprehensive strategy in place.

Talk to a NH estate planning lawyer today to connect your tax plans to your estate plan.