How to establish a tax-free retirement

by | Aug 6, 2019 | Financial Planning, Marc Montini, Montinico, Retirement, Retirement Vehicles, Tax Planning, Uncategorized

Taxes, Taxes, Taxes. tax and retirement

None of us like to hear that word, especially in retirement, but it’s something we all accept.  Did you know it’s possible to enjoy a tax-free retirement?  Yes, you could spend 20-30 years of your retirement in a tax-free world, with no withholdings needed and no tax bill on April 15th.  Accomplishing this feat just takes some planning with a firm dedicated to tax reduction strategies.  The earlier we can begin the planning process the better.

To accomplish this feat there are some things you need to know.  IRA distributions (from a 401(k), 403(b), or TSP) are all fully taxable and reportable income.  If those distributions range from $32,000 to $44,000, 50-85% of your social security will become taxable.  For example, if your IRA distributions were $45,000 and your combined social security benefits were $30,000, your taxable income would be $70,500 after the standard deduction (married filing jointly), you would owe tax on $46,500.

With a little time and planning you can find the Roth IRA to be a very powerful tool.  Let’s look at the same income but reduce the IRA distributions to $20,000 and add $25,000 in Roth distributions, with the same social security benefits of $30,000.  In the scenario, none of the social security benefits are taxable, none of the Roth distributions are taxable, and only the $20,000 IRA distributions are taxable.  That income is completely offset with the standard deduction of $24,000.  That’s how you live a tax-free retirement. Click here for a no-cost consultation.

Tax & Retirement planning go hand in hand.  

You can’t do one without the other.

So how do you get there?  First, it’s vital to establish a Roth IRA.  A Roth must be established for at least five years in order to receive the tax-free benefits.  Next, we want to research the viability of conversions from your traditional IRA into the Roth.  This is high-level of planning and should only be done with the help of a CPA or similar professional.

The process works like this.  Our financial advisors create an income plan for our clients that include a corresponding tax plan.  That tax plan tells us what your taxable income is going to be and what is the next tax bracket.  The difference is the maximum amount we would want to convert in that year.  Taking it a step further, our in-house CPA mocks up a complete tax return to help us choose the precise amount of withholdings we need to do in the conversion process to ensure you will not owe taxes come the next April 15th.

Call our office today to schedule a no-cost consultation to see if a tax-free retirement is possible for you.  Call (480) 428-8005 or CLICK HERE to request your no-cost consultation.

Written by Marc Montini, licensed fiduciary and IAR.