Millions of Americans are now either approaching their official retirement ages or have already passed it in recent years, as the baby boomers continue to age into their golden years in numbers never seen with previous generations. And while being able to retire comfortably and on time takes a lot of careful financial planning, one aspect of this that can often be overlooked in retirement is tax preparation.
Many Americans might not even consider their ongoing tax bills in their retirement at all, because it's something that might seem a little counterintuitive. If their income is largely coming from prior investments, including those into 401(k) or IRA plans, as well as pensions and Social Security payouts, that might seem like it shouldn't be or isn't taxable. But while some aspects of the taxes people have been paying for decades won't apply to them in retirement, others certainly will continue to do so.
Why is this the case?
The fact is that many adults have spent years paying money into tax-advantaged savings accounts that deducted money from their previous paychecks - potentially for decades - prior to having paid any taxes on them. This was a very easy way for them to build their savings as quickly as possible without facing an additional tax bill at the time, but they will have to do so when they make withdrawals from those accounts many years down the line. For that reason, it's often a good idea to make sure that these added payouts can be accounted for when their tax bills come.
In addition, it's also important to note that people who take these withdrawals often still might not make enough to actually have to pay much in the way of taxes. Some won't even meet the threshold which requires them to do so at all. Of course, each person's financial situation is different, so consumers will certainly have to take steps to calculate what their tax liabilities will be for any given year in retirement, and then do whatever they can to keep those obligations as low as possible.
Working with a reputable tax preparer on such issues, not only during filing season but throughout the year as well, is often a good way to stave off any unexpected issues that can arise when retirees face tricky situations. The more that can be done to plan for the year, the better off consumers are likely to be overall.