Fort Worth retirees being taxed after retirement.

2023 Tax Season - How Will You Be Taxed in Retirement?

The 2023 Tax Season is upon us. While everyone is busy preparing their income tax returns for filing, some of us—especially those who are advanced in age—may be wondering what this process will look like during retirement. In this article, our Forth Worth financial advisor shall discuss how you will be taxed during retirement and how you integrate it into your Fort Worth retirement planning so that you can work towards your dream retirement.

Fort Worth Retirement Planning: Retirement Income and Taxation

Below is a discussion on the most common sources of income of retirees and how they are taxed accordingly.

Taxes on Social Security Benefits

One persistent belief among retirees is that they don’t have to pay taxes on their Social Security Income. The amount of tax you will have to pay out of your Social Security Income will depend on your overall household retirement income, and whether you file a joint or separate tax returns. Depending on your total income and filing status, up to 85% of your social security benefits may be taxable. You can discuss the specifics of these tax brackets and values with your trusted Fort Worth retirement financial advisor.

Taxes on Pension Income

The general rule for pension incomes is that tax-deferred investments [i.e. IRAs, 401(k)s, and 403(b)s] will be taxed in the year you take the money. The tax rate shall also be based on all your taxable income during the year. Contributors to mentioned tax-deferred investments have the option to convert their pre tax plans to a Roth IRA by paying taxes on the year conversion. While these may cost more at the onset, this option affords retirees predictability as to their disposable income during retirement.

Tax-Free Roth IRA

As mentioned above, contributions made to a Roth IRA account are paid with after-tax dollars and as such withdrawals from a Roth IRA during retirement are entirely tax-free. This is why most Forth Worth retirement planning integrates this into a client’s portfolio as it makes the math of income and expenses easier to manage for retirees.

Other Taxable Accounts

Other sources of retirement income such as investments are taxed at regular rate. Our Forth Worth financial advisor suggests capitalizing on specific investment advantages such as long-term capital gains and qualifying dividends to further lower taxable income. Retirees can also report capital loss to offset capital gains or consider gifting assets that have appreciated to avoid capital gains while taking a tax deduction for the assets’ current value.

Integrating Retirement Taxation into Your Fort Worth Retirement Planning

Retirement planning, including retirement income taxation, can be very complicated if you are unprepared for it. However, our Fort Worth retirement planning experts can help you make your retirement dreams possible. By crafting a retirement roadmap personalized for you, our Fort Worth financial adviser will identify benchmarks and milestones that you can easily. Call us now and let’s journey together towards your dream retirement.