Navigating taxation in retirement requires a general understanding of how various accounts are taxed. In this video, Ryan discusses the taxation of the 7 types of retirement income (401k’s 403b’s IRA’s Roth IRA’s, Brokerage Accounts and Pensions).
So how do the 7 Types of Retirement Income Get Taxed?
It is important to understand how the seven types of retirement income get taxed because it can have a significant impact on your retirement planning and financial well-being. Taxation affects how much money you will have available to spend in retirement and how much you need to save during your working years.
It is essential to have a clear understanding of the tax implications of all the types of retirement income to make informed decisions about your retirement investments, savings, and withdrawals.
Failing to account for taxes on retirement income can result in unexpected and avoidable financial consequences, such as higher tax bills, penalties for early withdrawals, or missed opportunities to minimize your tax burden.
Knowing how your retirement income will be taxed can also help you develop a tax-efficient retirement income strategy that maximizes your after-tax income.
Furthermore, understanding the tax implications of retirement income is critical for managing retirement risks effectively. Changes in tax laws or policies could affect how much of your retirement income goes to taxes, which can impact your standard of living in retirement.
By staying informed about the tax implications of each type of retirement income, you can better manage and mitigate risks to your retirement income.
In this video, we’ll take a closer look at the seven types of retirement income and how they are taxed.
The video is about taxation in all the different types of retirement income and the potential of taxes to be the biggest expense during retirement, more than healthcare. The focus of the video is on retirement accounts, specifically 401k and 403b accounts, and the taxes that come with withdrawing money from them.
Money put into these accounts, employer matches, and any growth along the way is not taxed. However, every dollar pulled out is 100% taxable. There is an exception to this, which is a 401k or 403b rollover to an IRA, which is a non-taxable event.
There are two instances when a rollover can occur: an in-service withdrawal, which can happen at age 55 or 59.5, and after age 59.5 when you retire. The video explains that rolling over to an IRA is a good strategy if you want better options than those in your 401k plan or if you want to employ a Roth IRA conversion strategy. Upon retirement, you can roll your 401k balance out of your 401k into an IRA, which is also a non-taxable event.
IRA accounts are subject to Required Minimum Distributions (RMDs), which are 100% taxable. Upon the death of a spouse, the surviving spouse inherits the IRA and incurs no tax liability.
However, upon the death of both spouses, the children must take delivery of the account and distribute all funds out of the account over a 10-year period, with each distribution being 100% taxable.
In conclusion, understanding how your retirement income will be taxed is essential for effective retirement planning.
By knowing the tax implications of each source of income, you can make better decisions about how to manage your money in retirement. Speak with a financial advisor or tax professional for personalized advice on how to maximize your retirement income and minimize your tax liability.
Make sure you watch the whole video about the taxation of the 7 types of retirement income to get all the details!
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