How is Retirement Income Taxed?

Retirement is a scary issue for most Americans. We want to retire, of course … life without a job? Awesome! But …

What is there to be scared about? Well, despite the appeal of no more commutes, no more 9-5 (or 8-7, or 7-10, ahem), which we dream about, there’s the whole financial issue. How much do we have? How much income will our retirement investments continue to earn, and will it last as long as we hope to live. 250 years?

There’s a great new article from Sandra Block, a financial pro and writer for Kiplinger and USA Today that directly talks about which, and how, retirement income is taxed.

We can’t share the entire article here, but here’s an excellent out-take:

“Conventional wisdom has long held that you should tap taxable accounts first, followed by tax-deferred retirement accounts and then your Roth. This strategy makes sense for many retirees, but be careful if you have a lot of money in a traditional IRA or 401(k). When you turn 70 1/2, you’ll have to take required minimum distributions (RMDs) from the accounts. If the accounts grow too large, mandatory withdrawals could push you into a higher tax bracket. To avoid this problem, you may want to take withdrawals from tax-deferred accounts earlier.” (Full article.)

The point is: Retirement income can be difficult to plan for- so you definitely need to consult with a financial planning professional. Many CPAs are great at this service, as well as CFPs. Find one near you, and you will find some peace of mind for your future.