Having a retirement account is an absolute must for today’s
Americans. However, if these accounts are not used wisely, they can lead to
having to pay lots of tax penalties, as well as other costs and fees.
Therefore, the first thing you should do, when you open a
retirement account, is to study the fine print. What are the penalties for
drawing money out early or late? When you know the regulations surrounding your
retirement account, you can make informed decisions about how to use it. If you
do that and follow a few other tips, you can probably save quite a bit in retirement taxes.
Contribute to a 401(k)
Looking for a way to put off paying income tax? If so, then
consider contributing to a 401(k). You can contribute as much as $18,000 to
your plan without having to pay a dime of income tax on it until you withdraw
it. That’s a pretty sweet deal, right? Definitely take advantage of this perk.
Withdrawal from a Roth
If you know you’re going to have to make a withdrawal, do it
from your Roth IRA. Yes, the money in the account is taxed, but withdrawing
doesn’t cost retired individuals anything. Obviously, you want to leave your
money where it is as much as possible, but if you absolutely have to make a
withdrawal, do it the smart (free!) way.
Take Advantage of the Saver’s Credit
If your adjusted gross income is below $30,500 (for singles)
or $61,000 (for married couples), then you can claim the “saver’s credit” for
contributions made to your retirement accounts. This credit, which can equal up
to $2,000 for individuals and $4,000 for couples, is in addition to any other
tax deductions for retirement accounts, so it’s a truly great way to save big.
The more you contribute to a 401(k) or Roth IRA throughout the year and the lower
your income, the higher the credit you are likely to receive.
Keep Working
In all seriousness, you should retire when you’re ready. If
you’re not ready just yet and are still working, then know that you can delay
withdrawals from your 401(k) until the day you actually retire. This option
only extends to those who are over 70 and who don’t own the companies they work
for. If you meet those eligibility requirements, then you can start saving!
Obviously, there are lots of great ways to save on retirement
taxes. If you follow these tips and stay informed about all of your accounts
and how they work, you can enjoy great savings and, eventually, an even greater
retirement!
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