With over 70 million baby boomers in the United States, how many are celebrating their 65th birthday every day? Retirement is right around the corner for many. Are you prepared with a tax-savvy retirement plan?
While many boomers are rewriting the rules of retirement and working well into their seventies, there will come a time to take life easy, relax after a consuming career, and relish a fulfilling retirement.
Boomers have been through a number of volatile economic downturns (including one as we speak), in addition to unprecedented tax reform changes, and will need help charting what may be their biggest expense of their lives. Retirement planning is an inevitable topic of discussion during tax season since these strategies are a channel for present and future tax savings.
Below is a list of tax-savvy retirement planning talking points to discuss this tax season:
- Stock planning and investments
- Retirement plan options
- Maximizing annual contributions
- Withdrawal strategies
- Debt reduction and payment acceleration
- Required minimum distributions (RMDs)
- Post-retirement cash flow
- Retirement budgeting
- Estate and gift tax planning
- Establishing a legacy
- Charitable gifting directly from retirement funds to maximize deductions
The abovementioned pieces fit together like a puzzle, interconnecting how available retirement funds affect budgeting; how investment performance contributes to estate, gift tax and legacy planning; and how debt reduction frees up income for additional investment opportunities. It’s important to understand the tax implications of investments and long-term tax planning strategies associated with those investments.
By honing in on the various tax situations surrounding retirement planning, advisors are able to best position clients to withstand unforeseen events. For example, when engineers design a bridge, they do not determine the exact weight the bridge can hold; rather, they inject so much room for error that there is almost no chance the bridge could reach its maximum capacity. Retirement planning considers the “what ifs” in order to ensure the same.
Boomers nearing retirement are most likely wide-eyed with awareness of this volatile market, managing their retirement accounts, and cognizant of healthy investment positions. But before boomers get too close to retirement, be sure to ask the right tax-savvy questions and inject enough room for error to continue living a comfortable lifestyle in retirement. Below is a list of questions to consider this tax season.
- Do I have enough money to retire? Will current assets support a desired retirement budget?
- How will RMDs affect taxes?
- How much Social Security will be subject to income tax?
- What withdrawal strategies should I consider?
Luckily, for those looking to ramp up retirement plan contributions, the maximum allowable amounts have been increased in 2023.
The maximum amount of salary to be deferred into 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $22,500 (up from $20,500), with a $7,500 “catch-up contribution” amount for taxpayers 50 years and older, bringing the total contribution up to $30,000.
The “overall limit,” however, is $66,000, the maximum amount of annual contributions of combined taxpayer salary deferrals and employer matching contributions and/or profit-sharing contributions.
IRA contribution limits increased in 2023 and are now capped at $6,500. The additional “catch-up contribution” limit for individuals 50 years and older remains $1,000.
By pulling everything together and asking the right tax-savvy retirement planning questions, boomers can capture a snapshot of what retirement will soon look like. If you’re thinking about retirement in the next few years, let’s connect on the best strategy for a financially healthy retirement.
Stuart Steinberg, CPA, MBA has been working with families and their money situations since 1988. He can be reached at 61 Water Street, #2, Newburyport, MA 01950 and at (978)864-9581 and stu@eaglerockwealth.net
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Securities and Financial planning offered through LPL Financial, a registered investment advisor. Member FINRA www.finra.org / SIPC www.sipc.org.
