You’ve figured out your budget, your retirement nest egg is substantial, and you’re ready to make the transition to living on income from savings instead of income from work. But have you thought through the tax implications? It’s very common for tax planning to be overlooked, under the assumption that you’ll be in a lower tax bracket and Social Security payments aren’t fully taxed. In fact, a recent study found that 57% of Americans rarely consider the taxes they will pay/are paying in retirement.1 This can be an expensive mistake, and it has implications for other retirement benefits.
Depending on your income from other sources, up to 85% of your Social Security benefits may incur Federal income taxes. Additionally, withdrawals from a 401(k) and traditional IRAs are taxable, since the money you funded them with was tax-deferred. Pension payments are also considered taxable income. If you have taxable... ...
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