“Am I Making the Right Tax Decisions?”
Many people ask this question as they approach retirement. You spent years saving and investing. Now you want to keep more of what you earned. The good news is that with some planning, you can.
Taxes can be one of your highest costs in retirement. But you have more control than you may think. Waiting until you file your taxes each April might not be enough. Planning ahead can save you real money over your lifetime.
One rule guides much of tax planning: be proactive, not reactive. When you file your return, most chances to save have already passed. The choices you make during the year matter most. Some choices even matter years before.
It also helps to look at the big picture. Although it might not feel like it, today’s tax rates are lower than those in the past. No one knows the future, but many believe rates may rise because of the national debt. If that happens, acting now could help.
Two strategies often help people in or near retirement.
Roth conversions during low‑income years
Some people have a gap between leaving work and starting Social Security or required distributions. During this time, their income drops. Their tax rate drops too. Converting part of a traditional IRA or 401(k) to a Roth in these years lets you pay tax at a lower rate. The money then grows tax‑free and comes out tax‑free. It also avoids required minimum distributions. Spreading conversions over several years can lower taxes for you and your heirs.
Charitable giving with your RMDs
Once you reach the age for required minimum distributions, those withdrawals are taxable. This is true even if you do not need the money. If you give to charity, a qualified charitable distribution lets you send money straight from your IRA to a charity. It counts toward your required amount but does not raise your taxable income. For people who give regularly, this is a very tax‑efficient option.
These are only two examples. The right plan depends on your full situation. Your income, your accounts, your goals, and even your state of residence all matter.
If you are unsure about your tax decisions, you are not alone. It is worth talking with someone. At Harford Financial Group, we see tax planning as part of a full plan built around your life. We can help you identify opportunities in your situation.
If you’d like to explore your options or review your tax strategy, our team is here to help. You can reach us anytime through our Contact Us page to call, email, or send a message.