NEW YORK (AP) – Developing the best tax strategy for retirement can be much more difficult than you think, and tax experts say it’s important for people to consider their finances before making decisions such as: We agree that this is a time when we need to look particularly closely at the overall situation. The amount and timing of withdrawals from your 401(k) or when to start enrolling in Social Security.
“It’s the biggest change in your life, other than death. Don’t rush into decisions about when to receive your Social Security benefits or 401 benefits. To avoid surprises, think twice before making these decisions. “Consult with a tax professional today. You could save big on taxes,” says Tom Oseven, director of tax content and government relations at the National Association of Tax Professionals.
For example, if you take out a large amount of money to pay off your mortgage, etc., it can significantly increase what percentage of your Social Security benefits are taxed.
“A $20,000 capital gain could result in the same amount of Social Security income being taxed. Capital gains can also affect other parts of your tax return,” Oseven says.
“For example, some people take large distributions from their 401(k) to pay off their house. Now, now that they’ve moved up the income bracket, 85% of their Social Security will be taxable,” he points out. To do.
Withdrawing money from your retirement account too soon can result in hefty penalties and surprising tax consequences.
Additionally, if you collect your Social Security benefits sooner than you should, you may receive significantly less money each month than if you waited until you were up to age 70.
On the plus side, it’s not too late for taxpayers age 50 and older to make catch-up contributions to a traditional or Roth IRA in the 2023 tax year. Catch-up contributions to an IRA must be made by the tax return deadline (excluding filing extensions).
Kathy Pickering, chief tax officer at H&R Block, said taxpayers nearing retirement will still be able to make this catch-up contribution, potentially increasing their retirement benefits and reducing their taxable income in 2023. said.
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Learn more about AP’s tax season here. https://apnews.com/hub/personal-finance
