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There’s a reason why tax planning is weaved throughout the four pillars of our Retire With Purpose planning framework. Despite what you might want to believe, all of that income you’re counting on in retirement doesn’t 100 percent go to you.

Uncle Sam has always, and will always, want his cut, so taking the time to understand what that amount could look like now, will help you better prepare for a financially confident, more tax-efficient future.

Know the numbers: While the amount of traditional income tax you owe in retirement varies by state, there are also federal taxes to be aware of, some of which fall on income sources, such as:

• Traditional IRAs and 401(k)s – Tax deferred until you begin taking withdrawals; Plus, be aware of RMDs at age 72 (age 70 ½ if you were born before July 1, 1949)
• Social Security – Whether or not you pay taxes depends on your ‘provisional income’
• Annuities – The portion of the payment that represents your principal is tax-free, while the rest is taxable
• Dividends – Qualified dividends are taxed at long-term capital gains rates, while non-qualified dividends are taxed at ordinary income tax rates

The list continues on, but the point is, creating a carefully laden tax plan could help save you a small fortune.

Moral of the story: Although it may seem like your tax life should get simpler as you step into retirement, that isn’t the reality for the majority of retirees. Even if you have an average income, it’s most likely generated from several different sources, all of which play off one another.