Taxes in Retirement Get More Complicated, Not Simpler

By Modern Wealth Management

August 24, 2018

Most people believe that taxes are just a matter of fact, they are what they are.

The reality of taxes in retirement is actually something quite different. In fact, a person may have more control over the taxes they pay in retirement than they do at any other moment in their lifetime.

The tax code is super complicated. There are many different types of income such as dividends, capital gains, Social Security, ordinary income, withdrawals from IRAs, etc. It can be confusing as these different forms of income that a person may have in retirement are taxed differently. For example, Social Security could be tax-free, unless you disqualify yourself.

Today, people don’t pay enough attention to their taxes in retirement, and it’s not their fault. It’s not that they’re preparing their taxes wrong or that their CPA is inept, it’s that people just don’t understand the rules around distribution in retirement.

We didn’t go through anything to do with taxes, or future Social Security, anything like that. – Mike

This is why people don’t realize how closely tied taxes, Social Security, and investments are and how they all interact. In fact, in a recent interview on America’s Wealth Management Show, Dean asked Mike, a retired engineer about this. Mike responded with, “Oh yeah, the people that I worked with, an investment firm, back in the ‘90s and the early 2000s, we didn’t go through anything to do with taxes, or future Social Security, anything like that.”

According to JoAnn Huber, Partner, CPA/PFS, and CFP®, “Social Security is one of the biggest tax planning opportunities people have. But in order to really take advantage of that people can’t wait until they file for Social Security. They need to start planning before they retire.” So, what does JoAnn mean when she says, “planning before they retire”?

…some people will be subject to tax on their Social Security income. – JoAnn Huber, CPA/PFS, CFP®

“Most people think that their Social Security benefits aren’t going to be taxable. In reality, some people will be subject to tax on their Social Security income. So, we have to plan what we can do to control their income in retirement. We have to start several years before retirement and get money in the right spots. There are several things we can do. One of the things we can do to help reduce taxation on our Social Security is deciding when the best time to claim Social Security benefit is.” according to JoAnn.

The reason people don’t know these things about taxes, Social Security, and their investments is because it’s not taught. Well, no more! You can start learning about some of these strategies to reduce taxes in retirement with our Tax Reduction Strategies report which you can find in our Tax Planning Education Center along with other informational reports, videos, and audio clips.

You can catch more of the interviews with Dean, Mike, and JoAnn this weekend on America’s Wealth Management Show where they will be talking about tax planning on this weekend’s episode. Join Dean Barber and Bud Kasper this Saturday, August 23rd from 11:00am to Noon on 98.1FM KMBZ!

Our Advisors will sit with you and discuss your overall retirement plan, where you stand, and where there might be room for improvement. We call this our Retirement Plan Review and we’re happy to offer this to you free and without obligation. If you’re interested in a Retirement Plan Review, please give us a call at 913.393.1000 or schedule a complimentary consultation below.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.