Common Retirement Tax Mistakes
Recently, we did a piece highlighting common tax mistakes that will cost the taxpayer. The first piece highlighted the mistakes of not exploring your options when looking for tax beneficial accounts such as Roth IRAs or 401(k) plans. The other part looked at the incentive for keeping investments longer term in order to collect on capital gains rates instead of ordinary income. Here are some more common mistakes to avoid.
When setting up a retirement account, it’s important to be aware of every option (as evidenced in the first piece). Something every retirement investor must be aware about is the required minimum distributions (RMDs). These are accompanied specifically with most IRAs, they require a person to make minimum withdrawals after passing a certain age (typically 70 ½). If you don’t take out the RMD you can be taxed up to half of the required withdrawal amount.
Another mistake that may seem obvious is not tax planning before retirement. There are several ways you can take advantage of taxes as the year progresses. If you have a highly deductible year such as losing a job, high mortgage payments, or health related expenses, you could use this by converting IRA to Roth IRA and pay little to no tax, while boosting your retirement.
There are several ways to prepare for retirement, it’s important that you are prepared for anything that can happen. If you need advice, contact the experts at the Center for Financial, Legal & Tax, Inc. for help.