Why Tax Planning Matters in Retirement
Retirement can create a different tax picture from working years. Income may come from several sources, and the timing of withdrawals can affect taxable income.
Retirement tax planning Tennessee households undertake can help them consider these factors before major financial decisions are made.
Identify Taxable and Tax-Advantaged Assets
Retirees may hold money in:
Traditional IRAs
Roth IRAs
Employer retirement plans
Taxable brokerage accounts
Bank accounts
Business interests
Each type of asset may receive different tax treatment.
Understanding those differences can inform withdrawal planning.
Coordinate Retirement Account Withdrawals
Withdrawals from traditional retirement accounts generally create taxable income. Required minimum distributions can also affect the tax picture for eligible account owners.
The timing of withdrawals should be evaluated alongside spending needs and other income.
ProffittGoodson's retirement planning materials identify required minimum distributions and tax planning as relevant components of retirement planning.
Consider Social Security
Social Security benefits can be taxable at the federal level depending on income and filing circumstances.
The decision about when to claim Social Security should therefore be considered with other retirement income sources.
Charitable Giving
Charitable giving can have tax implications. Retirees may consider strategies such as donor-advised funds or qualified charitable distributions when appropriate.
ProffittGoodson describes charitable giving strategies and donor-advised funds as part of its services for retirees and families.
Tax Planning Is Not the Same as Tax Preparation
A tax preparer typically focuses on preparing and filing tax returns. Tax planning looks ahead to potential tax consequences before financial decisions are made.
Both functions can be valuable, and coordination between the tax professional and financial advisor may be useful.
Tennessee and Federal Considerations
Tax planning can involve both federal and state rules. Tennessee's tax environment may differ from other states, while federal rules can affect retirement accounts, Social Security, Medicare-related costs, investment income, and estate planning.
Tax rules change, so current information should always be verified.
Conclusion
Retirement tax planning Tennessee retirees undertake should coordinate retirement accounts, withdrawals, Social Security, investments, charitable giving, and applicable federal and state tax considerations. Working with qualified professionals can help connect tax decisions to the broader retirement plan.
FAQ
What is retirement tax planning?
It is the process of considering potential tax consequences when making retirement income, investment, withdrawal, and charitable giving decisions.
Are retirement withdrawals always taxable?
No. Tax treatment depends on the account type and distribution.
Can Social Security be taxed?
Some Social Security benefits may be taxable under federal rules, depending on income and filing circumstances.
Should a financial advisor and CPA work together?
Coordination can be useful when retirement investment decisions and tax planning are closely connected.
This material is for informational purposes only and does not constitute legal, tax, or investment advice. Please consult appropriate professionals before making decisions.
DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy, or investment product, and should not be construed as investment, legal, or tax advice. Proffitt & Goodson, Inc. makes no warranties with regard to the information or results obtained by third parties and its use and disclaims any liability arising out of, or reliance on the information. The information is subject to change and, although based on information that Proffitt & Goodson, Inc. considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers (Interactive Data Corporation, Morningstar, etc.). The Market Categories illustrated in this Financial Market Summary are indexes of specific equity, fixed income, or other categories. An index reflects the underlying securities in a particular selection of securities picked due to a particular type of investment. These indexes account for the reinvestment of dividends and other income but do not account for any transaction, custody, tax, or management fees encountered in real life. To that extent, these index numbers are artificial and cannot be duplicated in real life due to the necessity of paying those transaction, custody, tax, and management fees. Industry and specific sector returns (technology, utilities, etc.) do not account for the reinvestment of dividends or other income. Future events will cause these historical rates of return to be different in the future with the potential for loss as well as profit. Specific indexes may change their definition of particular security types included over time. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of Proffitt & Goodson, Inc. Past performance does not guarantee future results.