Weekend Reading: 4 Ways Taxes Could Burst Your Retirement Bubble (and What You Can Do About Them)

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading retirement tax challenges Weekend reading retirement tax challenges
Weekend Reading

As much as we would prefer Uncle Sam to not follow us into retirement, taxes do not disappear with the elimination of your paycheck.


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.