Some Things to Consider for Retirement Planning
It is very important to plan your retirement. We need to be secured financially for our future needs. You can only have a safe and secure future if you do retirement planning. One of the most important things to consider when doing retirement planning is to study tax matters.
It is still possible for healthy individuals who are retired to keep on working way into their retirement years. These individuals should be aware that state taxation on income varies widely for them. 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. Transferring to a new state can have tax consequences as well since municipal taxes can be imposed on you.
Other important sources of income for retirees include income from government, military, private pension and other retirement plans. IT is also the state laws that determine if you are to pay taxes for these sources of income or not. There are states, though, that exempt some of these sources from income tax while other states place taxable limits on these sources. Sometimes, you can even get taxed in two states. If you are a former resident of one state, you can be taxed on retirement plan withdrawals. There are federal tax formulas for social security benefits that certain states follow, but other states have their own specified formulas. Some states don’t even provide reimbursements.
You can have tax deduction son the properties that you purchase on some states and you can have homestead benefits provided by other states. There are also tax exemptions of clothing, food, drugs, and household goods which are retiree should also consider.
Roth IRA withdrawals are free from federal income tax and penalties. But if your source of income is from annual tax contributions, from conversion from traditional IRA into Roth IRA, or from earnings accumulated from your contribution, this could also be tricky.
You can have tax deductions for the money from annual tax contributions and money from conversions from traditional IRA into Roth IRA. The earning that you accumulated from your contributions are subject to income tax.
Seniors who have not opted for Roth IRA, should instead go for income tax withdrawals. Income tax withdrawals would mean you owe some amount to the income tax. Otherwise, switch to qualified retirement exemptions like 401k.
If you annuitize the account, then it would legitimize a penalty-free retirement account withdrawal before retirement.
These are the tax issues that you need to consider when doing retirement planning.