1.When entering retirement, and especially in the first year of retirement, you may find yourself dealing with many questions related to income taxes.

The following is a list of tax issues and questions that you should review with your financial and tax team:

  1. What is your tax rate in the year of your retirement (and if large, how can you mitigate some of those taxes) especially if you have a package or a payout of other executive plans?
  2. What are the tax issues in terms of your employer stock (each stock plan has its own tax issues, including stock held inside your 401k Plan?
  3. What will be the tax issues related to any deferred-compensation plans that you have in place?
  4. The severity of the tax hit will depend on the payout options you have chosen. It is important to model out the payments to see how it will affect your tax rates as you may find yourself pushed into higher tax brackets.
  5. Will your higher income (now or in the future) either affect your tax deductions due to phase-out’s and cause you to pay more taxes?
  6. Now or in retirement, will your investment income be subject to the Obamacare Tax (Net Investment Income Tax): 3.8%
  7. Other Tax Issues: If you want to move your 401k to a self-directed IRA, make sure you know the rules and issues to avoid the typical mistakes that many retirees make.

2.What are some long term income tax related retirement strategies?

What are the best retirement planning options for generating retirement income?
When entering retirement, it is beneficial to review all of your assets (current and future, like Social Security) to determine the best strategies to help assure your retirement income while optimizing the tax consequences now and into the future.

401k Loans (Now or Existing)?
If you have any 401k plan loans, you must continue to pay them or else they will “default” and be subject to income taxes and possible penalties (if you are not yet age 55). Also, you may want to see if you can take out 401k plan loans in retirement as that may be a source of tax-free un-penalized cash for emergencies.

Will my 401k Plan be subject to Required Minimum Distributions (RMDs)?
IRAs are subject to RMD’s around your age 70 ½. Your 401k does not have any RMDs until after you retire…even if you are older than age 70 ½. Once you retire, you will need to start taking RMDs.

Using Roth Conversion in Low income early retirement years.
If you find yourself in low-income years in early retirement, you may want to consider converting some of your IRAs into Roth IRAs especially if you are in the 0% to 25% tax brackets. This can save you money in the future if you are in higher tax years due to social security, other pension payments or RMDs from your retirement plans.

If you keep working - deductibility of job search costs (keep receipts)
If you are not going to fully retire, you may be able to deduct your job search and/or moving expenses related to a new job. This will also be true if you decide to do some self-employment consulting work. See your tax advisor about the records you must keep to assure the deductibility of those expenses.


Would you like to be periodically notified via email when content is added to the Retirement Toolbox?