Tax-Savvy Retirement Planning

With over 70 million baby boomers in the United States, how many are celebrating their 65th birthday every day? Retirement is right around the corner for many. Are you prepared with a tax-savvy retirement plan?

While many boomers are rewriting the rules of retirement and working well into their seventies, there will come a time to take life easy, relax after a consuming career and relish a fulfilling retirement.

Boomers have been through volatile economic downturns, in addition to unprecedented tax reform changes, and will need help charting what may be their biggest expense of their lives. While many boomers have established relationships with financial advisors, retirement planning is an inevitable topic of discussion during tax season since these strategies are a channel for present and future tax savings.

Below is a list of tax-savvy retirement planning talking points to discuss with your advisor this tax season:

• Retirement plan options
• Maximizing annual contributions
• Withdrawal strategies
• Debt reduction and payment acceleration
• Required minimum distributions (RMDs)
• Post-retirement cash flow
• Retirement budgeting
• Estate and gift tax planning
• Establishing a legacy
• Charitable gifting directly from retirement funds to maximize deductions
• Stock planning and investments

The abovementioned pieces fit together like a puzzle, interconnecting how available retirement funds affect budgeting; how investment performance contributes to estate, gift tax and legacy planning; and how debt reduction frees up income for additional investment opportunities. While tax advisors walk a fine investment-versus-tax prep line, it is important to ensure that taxpayers also understand the tax implications of their investments and long-term tax planning strategies associated with those investments.

By honing in on the various tax situations surrounding retirement planning, advisors are able to best position clients to withstand unforeseen events. For example, when engineers design a bridge, they do not determine the exact weight the bridge can hold; rather, they inject so much room for error that there is almost no chance the bridge could reach its maximum capacity. Retirement planning considers the “what ifs” in order to ensure the same.

Boomers nearing retirement are most likely wide-eyed with awareness of growing their retirement accounts and cognizant of healthy investment positions. But before boomers get too close to retirement, be sure to ask the right tax-savvy questions and inject enough room for error to continue living a comfortable lifestyle in retirement. Below is a list of questions to consider discussing with your accountant this tax season.

• Is there enough money to retire? Will current assets support a desired retirement budget?
• How will RMDs affect taxes?
• How much Social Security will be subject to income tax?
• What withdrawal strategies should be incorporated to lower my taxes?

Luckily, for those looking to ramp up retirement plan contributions, the maximum allowable amounts have been increased in 2019.

The maximum amount of salary to be deferred into 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $19,000 (up from $18,500), with a $6,000 “catch-up contribution” amount for taxpayers 50 years and older, bringing the total contribution up to $25,000.

The “overall limit,” however, is $56,000, the maximum amount of annual contributions of combined taxpayer salary deferrals and employer matching contributions and/or profit-sharing contributions.

IRA contribution limits also increased from $5,500 to $6,000. The additional “catch-up contribution” limit for individuals 50 years and older remains $1,000.

By pulling everything together and asking the right tax-savvy retirement planning questions, boomers can capture a snapshot of what retirement will soon look like. Please contact me at tgoodall@bpw.com or (805) 963-7811 to discuss tax implications surrounding your retirement planning in further.