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Episode#23: Prepping For Tax Season

Today’s Prep:

It’s the time of year when people start thinking about taxes. We’ll ask a few questions and offer a few tips to prepare you for tax season.

(Click the featured times below to jump forward in the episode)

Equipping Points:

[1:05] –  Most Folks Assume Their Taxes Will Be Lower In Retirement.

  • It’s an easy assumption to make. After all, once you retire, you’re no longer taking a paycheck. Furthermore, folks also assume they’ll be spending less money. However, this isn’t necessarily the case. If you don’t account for the tax consequences of your investments, you could be overlooking an expensive blind spot in your portfolio.

[2:07] – Taxes Are Like A Set Of Stairs. 

  • As you climb to the next stair, you pay the taxes that are associated with that step, and you no longer pay the taxes associated with your previous stair. Withdrawals from your retirement accounts will contribute to the stair on which you find yourself in retirement. Eric explains the taxes associated with each proverbial “stair” and covers the current tax rates.

[3:52] – Taxes You Don’t Pay In Retirement.

  • There are certain taxes you no longer have to pay in retirement. As an example, you no longer have to pay into Social Security and Medicare once you retire. These tax breaks can help you manage your tax burden and lower your tax bill in retirement.

[5:00] – How Should You Develop Your Tax Strategy While You’re Still Working?  

  • There are three tax buckets that will impact your finances. The first “bucket” is taxable money. This is simply money that’s taxed all the time. It includes income tax, capital gains from brokerage accounts, Social Security payments, etc…The second bucket is your tax-deferred money. This is the money you’re investing in qualified retirement accounts like 401(k)s and IRAs. Tax-deferred means you don’t pay taxes on your initial investments, but you do pay the taxes associated with your gains down the road. The third bucket is your tax-free money, and it really only applies to Roth IRAs and Roth 401(K)s. In retirement, you need to plan to incorporate all three of these buckets into your financial plan. It can help you mitigate your tax burden.

Today’s Takeaway:

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The host: Eric Peterson - Contact - Call: (515) 226-1500

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