Although preparing for your retirement is an excellent idea, preparing for how you’ll withdraw your retirement accounts is equally crucial. If you don’t consider how you’ll be using your retirement assets, you risk running out of money or lose a majority of your funds to taxes.
Below are some tips to develop a plan that would enable you to withdraw your retirement savings properly and efficiently:
Withdrawing from your Retirement Accounts
There are several options available for withdrawing retirement assets. The best one would depend significantly on the specific types of investment accounts you have, explains a top asset protection attorney.
If you have tax-deferred and taxable accounts, it’s best to use profits initially from taxable investment accounts rather than taking random distributions. While you’ll need to pay taxes since you’d be selling off your taxable investment asset, these would be long-term investments. This means that your taxes would be lower than typical income tax rates.
You could then withdraw from your tax-deferred assets, like a 401k or Roth IRA. But you’d need to pay a penalty fee, in addition to income tax, for an early withdrawal. But doing so would allow your assets to grow tax-free and should you pass away before using your funds, your heirs won’t need to pay taxes when they withdraw from the account.
About Cash Withdrawals
Although a majority of retirees go for cash withdrawals, you could likewise consider taking distributions in-kind. These would be taken out as bonds or stocks and would be assigned fair market values. This is a viable option if your investments aren’t doing well and you’re looking to trade them for something that would make you money.
You could also consider making charitable contributions. According to the Consolidated Appropriations Act 2016, retires aged 70.5 years old and older could make qualified charitable distributions yearly with a cap of $100,000. As this won’t be considered taxable income, it won’t increase your taxes, but you also won’t be able to deduct the donation from your tax bill.
Preparing a withdrawal plan for your retirement funds could reduce your taxes and safeguard your assets. In addition, having a solid plan would help organize your assets more efficiently and help you determine how every aspect of your plan would affect your long-term retirement goals.