People spend their entire adult life preparing to retire. This requires a significant amount of planning and saving. Once your retirement savings plans are set, you start to receive Social Security benefits, and your Pension is ready, you may wonder what could possibly go wrong? However, there are certain tax surprises that the newly retired may not be aware of. Continue reading below and contact our New Jersey certified public accounting and business consulting firm today.
Health Emergency and Long-Term Care
Simple medical procedures can cost a person thousands of dollars. This has the potential to detrimentally impact a retirement plan. In the event that your health insurance is not enough, you may need to dip into your retirement plan to pay these bills. While this withdrawal may not be subject to penalty, it may be subject to income tax if the funds come from a pre-tax account. That is why it is crucial to prepare in advance for the possibility of long-term care after you are no longer working. There are certain ways to enhance your health insurance coverage or you may wish to consider alternative ways to reduce your potential living needs, such as long-term care insurance.
Taxability of Social Security Benefits
In the event that you have excess earnings, it is possible for your Social Security benefits to be reduced. These benefits could also be subject to income tax if you are still working. Consider conducting a tax planning session so you can better understand the options available to you, including the possibility of delaying the receipt of these benefits.
It is best to understand if your pension is in good financial health. Oftentimes, they will offer a lump-sum payout option. Knowing whether or not you should take this is important. If there are risks, you may wish to consider cash out alternatives and plan for the possible drop in future income.
Minimum Required Distribution
If you forgot to take your minimum required distribution(RMD) from your retirement plan this year, the tax consequence may come as a surprise. This is because the penalty on the amount not withdrawn is 50%. It can benefit you to choose a memorable date so you remember to review your RMD so this does not impact you.
Future Tax Rates
After you retire, it is possibly and likely for tax rates to change. This can mean they may rise after you retire. Make sure you are prepared in advance for this possibility and plan accordingly. This can mean creating a plan with higher state and federal tax rates, increases in health care costs through medicare, more tax on Social Security benefits, and higher capital gain and dividend tax rates.
Contact our Firm
Werdann DeVito LLC is an experienced Certified Public Accountant firm serving clients throughout New Jersey with all of their financial needs. If you need quality assistance with accounting, tax, or consulting services, contact Werdann DeVito LLC today.