Retirement planning is something that you should consider carefully. You should realize that you will need finances for your future needs and this is why you need to secure your financial future. You can only have a safe and secure future if you do retirement planning. When formulating their retirement financial strategies, it is important for the retiree to carefully study important tax matters.
Some retirees wish to continue working even during their senior years. The taxation laws for different states vary and this is something that you should be aware of. There are states that provide extra privileges for working senior citizens. This is not true for all states though, because some state with treat you like anybody else and impose income tax on all the income that you earn from working. Amount of taxes imposed on income earned can also vary from state to state. If you relocate to a new state, then you can also be charged with municipal taxes.
Other important sources of income for retirees include income from government, military, private pension and other retirement plans. It depends on the state laws whether income from these sources are tax exempt or not. Some states exempt only selected sources of income while others place taxable limits on these sources. There are situations when a senior is taxed by two states. If you have relocated to another state, then you can still be taxed on retirement plan withdrawals in your former state. When it comes to social security benefits, there are states that strictly adhere to federal tax formulas while others follow their own specified formulas. Reimbursements are not provided by some states.
You should also consider sales and property taxes on your retirement planning; tax deductions are offered on properties bought by retirees while other states provide homestead benefits. You should also consider tax exemptions on food, clothing, drugs, and household goods.
Roth IRA withdrawals are free from federal income tax and penalties. But this could not apply to sources of income like annual tax contributions, money from conversion from traditional IRA into Roth IRA, and from earnings accumulated from your contribution.
Tax deductions only apply to income from annual tax contributions and conversions from traditional IRA to Roth IRA. But, you need to pay income tax on earnings accumulated from your contributions.
If you have not opted for Roth IRA, the you should opt for income tax withdrawal. Withdrawing means owing some amount to the income tax. You can also opt for retirement exemption like 401k.
The sure and safest way to legitimize a penalty-free retirement account withdrawal before retirement is by annuitizing the account.
These are the tax issues that you need to consider when doing retirement planning.