It does not matter what you do in an attempt to avoid taxes being taken out of your paycheck, your dear Uncle Sam will always get what is owed to him. When it comes to retirement, the same thing can apply. However, it is important to remember that when you retire, taxes will not have the same consequences as they do now. There are greater consequences for taxes after you have retired.
Many people will find themselves living on a set income while they are retired. If one begins to spend more than he or she has, your entire retirement plan and future living plan can be thrown off. If you begin to spend more than you have and you are not prepared to make adjustments, you will find yourself using more and more of your retirement savings.
As you begin to save for retirement and plan all the amazing things you want to do, you may forget about taxes. When you focus more on how much you think you will spend while you are retired and how much you would like to save for the future, you may not think too much about taxes. If you do not want to think about taxes and if you want to avoid having to pay such a high amount in taxes, the only way you can avoid paying any taxes on the retirement account withdrawals is to save your money in a Roth IRA.
When you have a Roth IRA account, the tax contributions you make to your retirement account will be taxed ahead of time. However, you will be able to withdraw the money in the account without paying for taxes. If there is money in one or multiple other accounts that is not a Roth IRA account, you will pay taxes on the money that needs to be withdrawn from your retirement account.
If you want to save money during retirement and you do not want any surprises while you are retired, we encourage you to make an investment in a Roth IRA account. When you add money into your Roth IRA account, you will have to make an upfront contribution in the beginning, but you may be able to take some weight off your shoulders by knowing how much money you currently have in your account and how much of that money you can spend during your retirement.
While you are retired, you do not want your spending and the amount of taxes you owe to get beyond your control. Do you have a withdrawal strategy for your retirement so you will know how much money you have and how much money you can spend while you are retired? When you are aware of how much you have in your savings, you will not spend too much and this will allow you to reduce the amount of taxes you will owe.
We know that you will have many things to consider while you are planning for retirement and taxes may not be one of the things you want to think about. However, it is one of the most impactful things you will need to consider. If you would like more information on how you can prepare for what’s ahead when it comes to taxes and how much you will owe during retirement, please contact us today. Roberts Tax and Retirement Planning are accountants and tax preparers in Gilbert and the East Valley.