There’s a lot to look forward to in retirement, but if you don’t make smart money moves while you’re working full-time, then you may end up paying more in taxes in your retirement than you had planned for. The tax planning experts at SD Associates have come up with some dos and don’ts of saving for retirement, so you can save yourself from having to deal with an expensive tax bill down the road.
DON’T Put All of Your Money Into a 401(k)
Far too often people make the choice to put all of their savings into a 401(k). Unfortunately, the money that you put into your 401(k) during your career years is tax-deferred, so when you retire, this type of savings account means you’ll have to pay taxes when this is withdrawn. In fact, the top marginal income tax rate is presently 37%, so if the majority of your savings—or all of your savings—are in a 401(k), you may want to rethink the account that you’re putting your hard-earned money into right now, because you’ll have less to enjoy in the future.
DO Utilize a Combination of Accounts
Rather than putting all of your (nest) eggs into one basket, putting money into tax-free, taxable and tax-deferred retirement accounts is the smartest option for your future self. By doing this, you’ll be able to have more control of your tax bracket when you retire. Plus, if you enlist the help of an accountant to create a strategy for your withdrawals, you’ll be able to keep your income low.
DON’T Withdraw Too Soon from Retirement Accounts
It may be hard to resist the urge to withdraw from your 401(k) or similar retirement accounts, but if you do so before your 59 ½, you’ll suffer from a 10% penalty. When your holdings are sold, these types of taxable accounts accrue capital losses, and to make up for this loss, you’re the one who has to pay for it. To avoid this, it’s best to wait to withdraw.
DO Let a Professional Guide You on How to Manage Multiple Accounts
Depending on your situation, knowing how to draw down on your income when you have multiple savings accounts can be tricky. For example, your marital status, income bracket and financial needs and goals all factor in when determining the best retirement saving options for you. If you want to enjoy as much of the fruits of your labor as possible when you retire, it’s best to contact a tax services professional to help you make the smartest financial decisions for your personal situation.
Whether you want help with your tax planning now or you want to prepare yourself for a better financial future, the experts at SD Associates in Elkins Park, PA can help! Contact us today to schedule your consultation.