Factoring Taxes Into Your Retirement Plan

Have you considered factoring taxes into your retirement plan? It should not be an overlooked step in the financial planning process.

Factoring Taxes Into Your Retirement Plan

Taxes, especially as they relate to your retirement assets, can be a source of constant concern as you plan for retirement. Due to the variety of accounts and income sources many of us have as we enter retirement, each with a potentially different tax situation, it can feel challenging to stay on top of things to ensure that you aren’t paying too much or too little. This is why so many of us enlist the services of a tax professional.

To put it simply, taxes are just another aspect of one’s retirement plan that every single retiree has to factor in. Moreover, there is always a tax situation that works for you. With this in mind, there are many options that can be utilized, often with the help of a tax professional, to make your portfolio tax-efficient. At Miramontes Capital, we make a point to work with clients’ CPAs whenever possible to ensure that the financial plan we arrive at includes the most advantageous tax options for you.

Required Minimum Distributions (RMDs)

If generating a monthly income from your retirement account is not a concern for you, it would be great to let your IRA assets continue to grow—leaving you with a substantial estate to pass on to your heirs. However, the IRS has systems against this—there’s a law mandating required minimum distributions (RMDs) from the account. From the IRS’s perspective, it is understandable. They have allowed the money to go on in a tax-deferred state for the duration of your working years, and they want to ensure that the income is taxed in a predictable way when factoring taxes into your retirement plan.

RMDs are relatively simple, but they are extremely important to get right. Once you reach the age of 70 ½, you have to withdraw a certain amount from all of your IRAs or face steep penalties. Using what’s called the Uniform Lifetime Table, which is generated based on life expectancy, you find your current age and arrive at a corresponding approximate number of years that you’ll live, which will stand for the distribution period of your IRA assets.

Let’s say you are 70 years old. Your distribution period will be 27.4 years. To calculate the minimum distribution of that year, you will take the total amount of your IRA and divide it by the distribution period. If the account had $200,000, this divided by 27.4 gives us a required minimum distribution of $7,299.

If you have a sufficient income to live comfortably on from other sources like Social Security, conforming to the RMD rules can feel burdensome. However, just as with taxes in general, RMDs are simply another aspect of the normal retirement landscape, something that you and your retirement professional need to discuss and work into your retirement plan.

When factoring taxes into your retirement plan, you should ask your financial advisor at Miramontes Capital about RMDs and the best options for your personal finances.

Sid Miramontes and Miramontes Capital have helped more than 1,000 people achieve their retirement goals—and Sid’s new book catalogs that dedication to every single client in the retirement planning process. You can request your copy of the book “Retirement: Your New Beginning” by clicking here.

Schedule an in-office or over the phone consultation to discuss how Miramontes Capital can help you with your new beginning through retirement planning.

Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place.