4 Mistakes to Stop Doing with your Retirement Money |
Posted: February 25, 2020 |
4 Mistakes to Stop Doing with your Retirement Money
Your financial management not only includes yearly income, expenditure and investments but it should also include your retirement plans. If you haven’t already started planning and saving, the time is now. If you already have your retirement money, here are four major mistakes to avoid:
1) Not checking if you are eligible for an IRA contribution Plenty of people have this thought that they cannot fund IRA’s if they already have a retirement plan at work. Depending on your income, this may or may not be true. You may be eligible to make an IRA contribution or make a contribution on behalf of a non-working spouse. The best way to find out is to read the IRA rules and check each year to see if you are eligible to make a non-deductible IRA, an IRa or a ROTH IRA contribution.
2) Not withholding your Social Security and Tax on Pensions Almost most forms of retirement assets are taxable such as pension income and social security income. The last thing you want to be asking in retirement is how much of taxes you owe. Not having the right amount of taxes withheld from your social security or pension when you retire, you may have issues when you file your taxes. To prevent this, you would need to do a tax forecast to get an estimate of your taxable income as well as your tax rates. A reliable tax return calculator such as this one here can help you estimate and ensure that you have the appropriate income withheld.
3) Not doing any Tax Planning before you Retire This is a major faux pas. Tax planning should be done before the year ends and not after. Tax planning especially benefits the years when you lose your job or when you have a lower income, as it allows you to take advantage of not paying any tax. For example, for those years where you end up with a higher deduction but low-income, you can take advantage of using this to your advantage by converting some of the IRA to a ROTH IRA and can pay little or no tax at all. This enables you to save thousands of dollars. However, the crucial step here is to do your tax planning which will help you need your financial eggs longer.
4) Not making Strategic Decisions on When and How to withdraw your Income The biggest mistake retirees make in their taxes is taking out their Social Security at a time that is not advantageous for them. This is a mistake because using your retirement money the wrong way will end up making you pay more in taxes each year. The best is to rearrange which accounts to withdraw first, so you get the most out of your post-tax income.
Bottom Line Proper retirement planning is crucial to offset any unexpected loss of income or payments down the road. You also don’t want to be paying more than what you owe. Always start a tax plan before the year ends so you can be prepared for not only retirement but also for a rainy day.
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