Retirement planning is important. We need to be secured financially for our future needs. In order to secure your future financially, then retirement planning is a must. One of the most important things to consider when doing retirement planning is to study tax matters.
You might be thinking of continuing to work even after you have retired. The taxation laws for different states vary and this is something that you should be aware of. There are states that provide extra privileges for working senior citizens. This is not true for all states though, because some state with treat you like anybody else and impose income tax on all the income that you earn from working. The taxation amount differ between states as well. There are also municipal taxes imposed on retirees relocating to a new home.
Other important sources of income for retirees include income from government, military, private pension and other retirement plans. It depends on the state laws whether income from these sources are tax exempt or not. There are states, though, that exempt some of these sources from income tax while other states place taxable limits on these sources. It is also possible to be taxed in two states. If you have relocated to another state, then you can still be taxed on retirement plan withdrawals in your former state. When it comes to social security benefits, there are states that strictly adhere to federal tax formulas while others follow their own specified formulas. You can find states that do not provide any reimbursements at all.
You should also consider sales and property taxes on your retirement planning; tax deductions are offered on properties bought by retirees while other states provide homestead benefits. You should also consider tax exemptions on food, clothing, drugs, and household goods.
If you make withdrawals from your Roth IRA, then you will not be imposed federal income taxes on these. But this could not apply to sources of income like annual tax contributions, money from conversion from traditional IRA into Roth IRA, and from earnings accumulated from your contribution.
Tax deductions only apply to income from annual tax contributions and conversions from traditional IRA to Roth IRA. But, withdrawals from earnings accumulated from your contributions is subject to income tax.
If you have not opted for Roth IRA, the you should opt for income tax withdrawal. Income tax withdrawals would mean you owe some amount to the income tax. If not, then you can get a qualified retirement exemption like the 401k.
The sure and safest way to legitimize a penalty-free retirement account withdrawal before retirement is by annuitizing the account.
These are the tax issues that you need to consider when doing retirement planning.