Evaluate Your Potential Tax Liabilities
If you haven’t thought of a smart tax strategy up until now, now’s your chance. Where will you be drawing your income form once you retire? Remember, retirement accounts have different tax liabilities, so figuring out when and how you withdraw your money is crucial.
Here’s why! You shouldn’t just assume you’ll be in a smaller tax bracket when you retire. All your added income could actually push you upwards, so it could be best for you to start withdrawing money from a Roth IRA instead since those dollars have already been taxed when you made contributions. That way, your income will go up but your taxes will stay the same.
If you start withdrawing from 401(k)s or traditional IRAs instead, your taxes will increase instead.
On the other hand, if your tax bracket is small and you don’t have any other sources of income, the smart move would be to tap into your taxable accounts like the 401(k) and traditional IRA.
To make sure that you’re taking the right steps, talk to a financial adviser first, and cover all your bases.
