After a lifetime of saving, pulling money out of a 401k or an individual retirement account can be tricky for Grainger employees, or for anyone, for that matter. As soon as you do, the money becomes taxable income. With a little strategy behind you, making thoughtful withdrawals is possible.
There are steps you can take to ease your tax burden in retirement before you retire. Roth IRAs and real-estate profits are two options offering tax-free income. Funding a Roth IRA with after-tax contributions isn’t just smart, it’s a great way to manage (and avoid) tax burdens in retirement because qualified distributions of contributions and earnings are not taxed. And couples filing jointly can also enjoy a tax-free gain of up to $500,000 on the sale of their home that is used as their primary residence for at least two years.
If retirement is right around the corner you can help to keep your taxable income low if you purchase your healthcare coverage from the government. This can help you to qualify for big tax subsidies. Even withdrawing as little as $1,000 from your tax-deferred account per year during this time can likely disqualify you from receiving subsidies, costing you a substantial sum if you are an early retiree.
If you’re currently retired and haven’t thought about mandatory withdrawals from your retirement accounts, you should start. Once you turn 70, drawing down your tax-deferred IRAs and 401k accounts is mandatory, as are the taxes associated with these savings. Pulling out tax-deferred money and other tax-deferred savings in your sixties to live on can help you avoid potentially higher interest rates on larger withdrawals later on.
When it comes to your retirement nest egg, your goal should be to have the absolute maximum amount accumulated for your retirement. But before you make any decisions, make sure you discuss your long-term plans with your financial advisor. If you do not have one, Mooney Lyons can help. Please visit us at mooneylyons.com. We can analyze the needs you have now in early retirement, and anticipate those you’ll have in the future.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
There are several factors that could impact the tax-free gain on the sale of your primary residences such as secondary homes, married couples, and special circumstances. Please consult with a tax advisor prior to making any decision. Tax laws are subject to change.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRAS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs.