Tax Season Tips for Retirement

Roth IRA Tax Benefits 

A Roth IRA is another Individual Retirement Account – the key difference being your contributions are made with after-tax dollars. This means you will not have to pay taxes when it’s time to withdraw during retirement. Here are some tips to get the most out of your Roth IRA:

• Tax-free growth: Not only are your withdrawals tax-free, but so is your account growth. 

• No RMDs for Roth IRAs: A Required Minimum Distribution (RMD) is the amount you must withdraw from a retirement account each year after a certain age. Roth IRAs are exempt since taxes were already paid.

• No Age Limitation: You can contribute to a Roth IRA as long as you have earned income, at any age (even as a minor or a retiree). 

If you have a Traditional IRA and want to switch to a Roth, there are instances in which you may want to consider a conversion. Those include:

• You expect higher future tax rates.

• You have a low-income year, allowing for a lower tax cost on the conversion.

• You want to reduce future RMDs that are required on Traditional IRAs.
  
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Handling Required Minimum Distributions (RMDs) in Retirement

If you're 73 or older, the IRS requires you to take Required Minimum Distributions (RMDs) from Traditional IRAs and 401(k)s.It's the government's way of ensuring taxes are paid on your retirement savings by spreading out withdrawals over time while also collecting its tax revenue. If you don’t take an RMD, you can face penalties. 

RMDs can be tough to navigate, so consider: 

• A solid withdrawal strategy: Consider spreading distributions throughout the year rather than taking a lump sum.

• Use RMDs for charitable giving: A Qualified Charitable Distribution (QCD) allows you to donate up to $100,000 directly to a charity, which can satisfy your RMD while excluding the amount from your taxable income.

• Consider your other income sources: If you receive Social Security or pension income, balancing your RMDs can help manage your overall tax bracket — and your tax bill. 
  
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Get Tax Ready With PensionBee 

Tax season is the perfect time to make the most of your retirement savings. By rolling over your retirement accounts into a PensionBee IRA, you can combine everything into one easy-to-manage plan. Track your savings, manage transfers, and stay updated on your performance. Every customer gets a personal rollover manager - we call them BeeKeepers - to help guide you through a simple, stress-free process, so you can feel confident about your retirement.
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Frequently Asked Questions (FAQs)

Are there any tax implications when converting your IRA? 

Yes, converting a Traditional IRA to a Roth IRA is a taxable event because the converted amount is treated as ordinary income for the year of conversion. You can minimize the impact by converting in a year you earn a lower income. 

How often can I convert my IRA?

Fortunately, there is no limit to how many conversions you can do. This allows you to spread the conversion out and convert lower dollar amounts over many years.

What taxes do I have to pay on a 401(k) withdrawal?

If you choose to withdraw from your 401(K) before you turn 59 ½, you are subject to a 10% tax which is an early distribution penalty. You also have to pay income tax on your distribution. Some plans mandate a 20% withholding at the time of distribution.