Retirement planning is important. You should realize that you will need finances for your future needs and this is why you need to secure your financial future. With retirement planning, you are assured of a safe and secured future. One of the most important things to consider when doing retirement planning is to study tax matters.
It is still possible for healthy individuals who are retired to keep on working way into their retirement years. Income tax laws of different states vary and so you should know what your state law says about income taxes for working retirees. There are states that provide extra privileges for working senior citizens. You can also be in a state where there are no privileges or exemptions on senior income taxes and you will need to pay the same taxes as everybody else. The taxation amount differ between states as well. If you relocate to a new state, then you can also be charged with municipal taxes.
Income from government, the military private pension, and other retirement plans are other important sources of retiree income. These sources of income can be taxable depending on your state laws. Selected sources of income are taxes by some states while other stats put a taxable limit on these sources of income. It is also possible to be taxed in two states. If you have relocated to another state, then you can still be taxed on retirement plan withdrawals in your former state. Federal tax formulas are following by some states when it comes to social security benefits and some follow their own specified formulas for this. Some states don’t even provide reimbursements.
When it comes to sales and property taxes, there are states that offer tax deductions on properties bought by retirees and some others provide homestead benefits. There are also tax exemptions of clothing, food, drugs, and household goods which are retiree should also consider.
You don’t have to pay taxes and penalties on Roth IRA withdrawals. But if your source of income is from annual tax contributions, from conversion from traditional IRA into Roth IRA, or from earnings accumulated from your contribution, this could also be tricky.
You can have tax deductions for the money from annual tax contributions and money from conversions from traditional IRA into Roth IRA. But, you need to pay income tax on earnings accumulated from your contributions.
You can opt for income tax withdrawal if you have not opted for Roth IRA. Withdrawing means owing some amount to the income tax. You can also opt for retirement exemption like 401k.
The sure and safest way to legitimize a penalty-free retirement account withdrawal before retirement is by annuitizing the account.
Retirement planning should also carefully consider tax issues and concerns.