skip to Main Content
A Closer Look At The Retirement Tax-Bracket Myth

A Closer Look at the Retirement Tax-Bracket Myth

The words “December, January, and February” immediately form a clear picture in the minds of people in the Northeast: Cold days and nights, snowy roads, and for some, the start of ski season. The mention of these very same months, however, brings to mind summer break, beaches, and balmy weather for people on the other side of the globe. Same words, entirely opposite meaning for different folks. This peculiarity is the direct result of word association and personal perspective.

Let’s apply this same analogy to a financial issue: Retirement.  When workers forecast their retirement they usually begin thinking about travel, relaxation and the expectation of lower taxes. Unfortunately, a group of these eventual retirees may quickly begin associating “retirement” with “higher tax bracket.” Going back to our weather image, what these folks may have originally considered “summer” has somehow morphed into a “cold July.” Here are some reasons why that might occur:

  • While your “earned” income will likely decline during retirement, that doesn’t mean your overall income will decrease. You may have other sources of income such as Social Security benefits, required distributions from an IRA or 401(k) account once you reach age 70½, and potential retiree benefits such as pension income.
  • If you’ve done a good job saving and investing during your working years, you will likely be living off your portfolio during retirement. In addition to qualified accounts such as the aforementioned IRA and 401(k), you will likely incur some amount of interest, dividends, and capital gains from after-tax investments.
  • Deductions and exemptions can sometimes disappear. You may have paid off your home by the time you retire and no longer qualify for the mortgage interest deduction. You might even downsize your home, which in turn may translate into a reduced real estate tax deduction.

The common thinking regarding retirement planning is to defer as much income as possible into your retirement years when your taxes will hypothetically be lowest. That’s the prevailing concept behind tax-deferred investments like IRAs and 401(k)s. However, if you think there’s a chance your income may actually increase in retirement, consult with your tax professional and Wealth Advisor now. There may be some strategies you can use to potentially lessen this eventual tax burden before retirement.  This may be the case if you find yourself in the tax planning Golden Years: those years post-retirement but pre-age 70 1/2, when required mandatory distributions begin from retirement accounts.

When it comes to retirement tax brackets, we can’t necessarily waive a magic wand and change winter to summer. However, we may be able to find ways to warm up that portfolio and take the chill off!

 

Important Disclosure Information

 

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This presentation is not a substitute for personalized advice from RegentAtlantic.  This article is current only as of the date on which it was sent.  The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic.  Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

 

Please remember that RegentAtlantic does not provide tax advice.  Please consult with a tax professional of your choosing prior to implementing any tax strategy including those discussed in this article.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

Back To Top