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In order to maximize the amount kept in your pocket, make sure you have a proactive, tax efficient retirement plan – plus, be aware of common tax issues, such as these:

📌 Distributions from tax-deferred retirement plans are taxed as ordinary income: That includes your 401(k) or 403(b). To elevate your tax efficiency, consider utilizing a Roth IRA or Roth 401(k) in combination with (or in replacement of) your traditional retirement accounts.

📌 A portion of your Social Security benefits could be taxed: This is the case if your combined income is above IRS limits for filing status. Yet again, diversifying your retirement income stream with tax-exempt accounts will help.

📌 If you have a tax-deferred retirement plan, you must take RMDs starting at age 72 whether you need the money or not. And that will boost your taxable income: As stated, “If you don't take your RMD, or if you withdraw the wrong amount, the IRS can assess a penalty.” Moving savings to a Roth IRA or utilizing a qualified charitable distribution (QCD) can help reduce taxes on these withdrawals.

📌 Your defined benefit retirement plan (pension) is fully or partially taxable: While these are becoming rare, taking a lump-sum payout and monthly payouts each come with tax consequences. As such, creating a tax strategy with a professional is important.

What’s your strategy? Tax planning opportunities are abundant in retirement, but without taking advantage of them, your bubble can certainly burst.