Retirement's the Time to Manage Your Money
With a Little Knowledge You Can Keep More in Your Pocket
Help maintain your financial peace-of-mind during retirement by educating yourself about the tax regulations directed at retired individuals. After all, although you have said good-bye to the workforce, you still need to work at managing your money.
Knowledge is Power
So you're about to retire - congratulations! Buying a new set of golf clubs might be high on your to-do list, but make sure you also consult with a tax professional and financial planner several months before exiting the workforce. They'll help make sure you're aware of the appropriate tax laws so you can think about other things - like how to take a few strokes off your game.
Social Security: A Moving Target
If you were born after 1937, there's something you should know. Uncle Sam is raising the age at which you may become eligible for full social security. For example, for those born from 1943 through 1954, the age at which you can draw full social security is 66. Also keep in mind that people who collect at an earlier age get a smaller amount than those who collect later in life.
How Will You Manage Your Distribution?
When you get a distribution from your retirement plan, you have three options:
Roll it over into an IRA. This option has two advantages. You don't pay tax on the distribution until you begin to take money from the IRA, and the money in the IRA continues to earn tax-deferred income until it is withdrawn.
If you were 59 1/2 or older at the time you received the distribution and you meet certain other requirements, you can compute your tax using the ten-year averaging method. This method can result in significant tax savings. The ten-year method is available only to individuals born before 1936.
If you don't roll the distribution over into an IRA and you are not eligible (or do not elect) to use the ten-year averaging method, your distribution will be taxed in the same manner as your other income.
The rules relating to retirement distributions are very complex. Be sure to discuss your options with your tax professional and/or financial advisor.
Working Could Work Against You
You will have to repay some of your social security benefits if you're under age 65 and you earn more than $11,280. There is no earnings limit for taxpayers age 65 or older. In addition, the money you earn may cause your social security benefits to become taxable or increase the amount of your benefits that are taxable.
The bottom line is it pays to be aware of the tax laws that can affect the management of your retirement funds. So arm yourself with knowledge and consult your tax professional and financial planner. It can help you make the most out of the back nine of your life.
