Retirement planning and tax planning are closely connected. Pensions, Social Security, investment income, required distributions, and withdrawals from tax-deferred accounts may combine in ways that affect more than one part of your return.
Map your income sources
Begin by identifying which accounts may produce taxable, tax-deferred, or potentially tax-free income. The order and timing of withdrawals can influence taxable income from year to year.
Understand Roth conversions
A Roth conversion moves assets from an eligible pre-tax retirement account to a Roth IRA. The IRS generally treats previously untaxed converted amounts as taxable income in the year of conversion. That current cost should be weighed against long-term goals and future tax expectations.
Avoid all-or-nothing thinking
A conversion does not always need to involve an entire account. Depending on the situation, measured conversions over multiple years may be worth evaluating. Account values, other income, deductions, cash available for taxes, and time horizon all matter.
Consider the wider impact
Additional taxable income may affect the taxation of Social Security and other income-related calculations. Retirement decisions should be coordinated with a tax professional and, where appropriate, financial and legal advisors.
Plan before December
Waiting until the final days of the year can limit choices and create processing problems. An earlier projection allows time to compare alternatives.
Contact ARP Tax Pro to discuss retirement-related tax planning.
This article provides general educational information and is not individualized tax, legal, or investment advice.