2 Reasons Why Your Tax Burden Could Increase In Retirement

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According to the top tax preparation services in Virginia, the majority of people assume that their tax burden will noticeably decrease in retirement once they stop getting a paycheck, but this is not always true. A high tax bill is one retirement risk to be aware of and to try and mitigate. Even though you may be experiencing comparatively low taxes right now, however, a change in leadership in Washington and a growing national debt could change that. Let us look at some reasons why your tax burden could increase in retirement.
  • Social Security
Up to 85% of your Social Security benefit can be taxed, based on your income. To figure out if your benefit can be taxed, add up your adjusted gross income, non-taxable interest, and half of your Social Security benefit to get your combined income. If your combined income as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be taxable. And if your combined income as an individual is over $34,000 or over $44,000 as a married couple filing jointly, up to 85% of your benefit may be taxable.
  • Required Minimum Distributions
Distributions from traditional retirement accounts such as IRAs, 401(k)s, 403(b), 457, and thrift savings plans are taxed as ordinary income. This can potentially mean a higher tax burden in retirement. Required Minimum Distributions from your traditional retirement accounts beginning at age 72[1] and may force you to withdraw more than you would otherwise every year. There are ways to help minimize your taxes in retirement, such as converting part or all of a pre-tax retirement to a Roth IRA.
Getting in touch with the expert certified public accountants in Fairfax County will help you understand more ways to help decrease your tax burden in retirement!

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mysba
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Financial statements are a must if you have ever wanted to better understand your small business finances or apply for a loan.

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