With the federal deficit growing larger every day, it is pretty clear that at some point in the future taxes will rise on all Americans, including retirees. Fortunately, there are some steps you can take now that can help you be proactive in optimizing your retirement plan to maximize your tax efficiency:
1. Tax-deferred contributions. When you contribute to an IRA or 401(k), taxes on those funds are deferred until withdrawals are eventually made. If you are in a higher tax bracket, you should consider paying the taxes now on those contributions rather than deferring to a future date when taxes may be higher.
2. Roth IRA. Adding a tax-free account like an IRA to your tax-deferred accounts will provide you with flexibility as to where you pull income from to supplement your income during retirement.
3. Retirement account conversions. You can convert an existing IRA or 401(k) account into a Roth IRA or other tax-free vehicles where future growth and withdrawals will not incur any taxes. You should make the conversions when tax rates are low and at levels that don’t put you into a higher tax bracket.
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0041.