Tax Planning for Retirement: Things to Remember

Many people look forward for the day they retire. This is the time when they can relax and enjoy the fruits of their labor. But, regardless of how you want to spend your retirement, having a good tax strategy and plan for retirement is a must.

It is important to understand that there are many potential tax events that can be triggered when handling your retirement assets and financial transactions. With the help of tax experts like TaxPM you should be able to optimize your tax strategy. In any case, you should take a few things into consideration.

Asset Protection

According to many experts in this area, if you want to improve your asset protection, you will have to diversify your retirement assets. Use different vehicles like investments and insurance products to keep your assets safe. You should also think about the tax laws and regulations that may eventually affect your sources of income.

Now let’s consider some of the sources of income generated by retirees.

401 (k)

As you are probably aware, a 401 (k) represent a retirement savings plan sponsored by your employer/s. (1) With its help, you can save and invest a part of your paycheck before the removal of taxes. But, you should keep in mind that 401 (k) distributions are completely taxable. This is quite logical because the contributions were made before taxation.

Roth IRA

When it comes to Roth IRA, you should know that there are no deductions for the contributions. In other words, they act as so-called after-tax funds. People are free to withdraw contributions from the plan at any point, however depending on age there are often taxes and/or penalties applied to the transaction. In other words, Roth IRAs could be a more flexible option compared to traditional IRA.


SEP IRA is the ideal solution for self-employed persons who want to make sure that their retirement plan will get them significant income in the future. It’s also good for sole proprietors. Many people use a SEP IRA to create tax-deductible contributions for the last year. It’s possible to change the amount you contribute at any time of the year.

Traditional IRA

Traditional IRA has deductible contributions, but only from current income. (2) So, when there are withdrawals of contributions at retirement, they are taxable as any ordinary income. The same goes for the income. Generally speaking, those who belong to the lower tax bracket can expect significant, permanent tax savings with Traditional IRA. Keep in mind that the income is taxed equally no matter what kind of origin it has – interest, dividends or capital gains.

Proper tax planning for retirement depends on your income, goals, qualified plans and tax filing status. Use professional advice whenever you are making a plan like this. TaxPM is here to help you.