Are you paying too much in taxes? : simplebooklet.com

Ahhhh taxes a necessary evil in our American lives They pay for roads safety and a whole host of other community related services We enjoy the benefits our taxes buy but loathe the idea of paying more than our fair share Taxes leave our pockets with that less than full feeling after Uncle Sam takes his cut Taxes follow you even into retirement Those retirement accounts you ve started drawing from Social Security benefits you re receiving and other income from accounts designed to support your lifestyle in retirement may be taxable For most of your working life you ve been in an accumulation phase gathering and growing assets to be used to support you in your later years During retirement however you move to a different mindset as you transition into a distribution phase Planning for the distribution phase includes a shift in perspective as you work toward preserving the assets you spent so many years building The key to preserving your assets is to develop a smart distribution strategy one that accounts for many things including the taxes you ll owe in retirement and answers key questions When should I start taking income from my accounts Which accounts should I take the income from A solid distribution strategy is designed to create a plan for minimizing your tax liability and maximizing your income and maintaining that income for as long as you will need it Even if you ve already entered retirement you can still benefit from good distribution planning and potential repositioning of assets to ensure your strategy is as tax efficient as possible While distribution planning would start before retirement in an ideal world people who have already entered retirement can also greatly benefit from building a distribution strategy to pay less in future taxes But where do you begin What steps do you need to take today to help ensure success tomorrow An experienced financial professional can help you develop a taxefficient approach designed to preserve your retirement assets whether you re already retired or you plan to work 10 more years

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2020 Income Tax Brackets _______________________________ RATE INDIVIDUALS MARRIED FILING JOINTLY 10 12 22 24 32 35 37 Up to 9 875 9 876 to 40 125 40 126 to 85 525 85 526 to 163 300 163 301 to 207 350 207 351 to 518 400 518 401 and up Up to 19 750 19 751 to 80 250 80 251 to 171 050 171 051 to 326 600 326 601 to 414 700 414 701 to 622 050 622 051 and up Money in your pocket Many people think that retirement automatically means you pay less in taxes After all you re no longer being handed a paycheck from an employer right The reality is that most Americans don t reduce their tax bill that much in retirement The reason You re still taking in an income but you most likely have fewer deductions and credits than you had during your working years Retirement income can come from a variety of sources both taxable and nontaxable Whether or not the income is taxable depends on its source or what account you take it from The key to minimizing your taxes and putting more money in your pocket is to blend your income from a variety of sources Here s a look at which accounts are taxable and which are not Taxable Income Qualified Accounts Most retirement accounts including 401 k s 403 b s SIMPLE IRAs SEP IRAs profit sharing plans pension plans and traditional IRAs are called qualified accounts Qualified accounts are designed for retirement income any money saved into these plans can be accessed without penalty after age 59 The IRS has allowed money in these accounts to be saved and grow tax deferred meaning the taxes have been delayed until some point in the future You haven t paid any taxes on qualified retirement accounts yet When you start to take income from those accounts taxes are owed at your ordinary tax rates at time of distribution

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Beware Because you haven t paid any taxes on this money yet the IRS will soon come calling for what it s due At age 72 you must start taking an annual required minimum distribution RMD from a qualified account This amount is calculated based on your age amount of money in the account and life expectancy factor If you don t take your RMD you could receive a tax penalty of 50 of the RMD amount for that year Social Security Will your Social Security benefits be taxable It depends To avoid being taxed on your Social Security benefits any income from other sources such as a job or qualified retirement accounts must be below the allowed base amount for your filing status 2020 Limits to Taxable Social Security Benefits OF SS BENEFITS FILING STATUS COMBINED INCOME THAT MAY BE TAXABLE __________________________________________________________________ Individual 25 000 to 34 000 More than 34 000 Up to 50 Up to 85 Married Filing Jointly 32 000 to 44 000 More than 44 000 Up to 50 Up to 85 Combined income adjusted gross income AGI nontaxable interest of Social Security Benefits Annuities Annuities are another type of account designed to provide income during retirement Unlike more traditional retirement accounts not all income from an annuity may be taxable It depends on a variety of factors including what type of annuity it is and how it was funded Not sure how your annuity income might be taxed A financial advisor can review your existing annuity and help clarify Non Taxable Income A Roth IRA is a hybrid of a qualified and nonqualified account Like a traditional IRA it s designed for retirement and you can access funds in a Roth IRA penalty free after age 59 Unlike a traditional IRA however a Roth IRA is funded with after tax dollars Qualified distributions from a Roth IRA are free from federal income tax and a Roth IRA doesn t have a required minimum distribution while the account owner is alive

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Deduct This Consider this In your younger years you probably took advantage of a wide range of tax deductions and credits This may have included a child tax credit or expenses for childcare You also may have taken deductions for the interest you paid on a mortgage and student loans or workrelated expenses you were able to write off However because of changes brought by the 2017 Tax Cuts and Jobs Act it is likely that fewer taxpayers will itemize You re no longer able to claim certain deductions on your taxes such as the ability to claim personal exemptions The federal government has changed its itemized deduction rules related to work expenses so you can t deduct mileage equipment or other work related items anymore Even if you do itemize some of the allowed deductions may no longer work for your situation Maybe you ve paid off your house and loans which means you can no longer deduct mortgage interest on your return When you meet with a financial advisor he or she can review the accounts you currently own and provide you with an understanding of how income from each account might be taxed He or she also can introduce you to a qualified professional who specializes in taxes But don t wait It s critical to meet with an advisor now in order to put an effective plan in place from the beginning of your retirement The hardest thing in the world to understand is the income tax Albert Einstein Tax Laws are Ever Changing Just when you think you ve got your tax picture figured out the IRS and Congress come along and mix things up Changes in tax law can drastically impact your retirement income leaving you to make critical lifestyle adjustments While changes to federal tax laws might have the biggest impact on your bottom line you might also be affected by modifications to your state and local tax codes These could also take a bite out of your income An aging American population is creating a new set of variables for tax experts making it difficult to predict what future tax liabilities may look like for retirees Increasing national debt projected Social Security shortfalls and increased Medicare expenses including costs related to health care and long term care may drastically affect future tax codes Never fear It s not necessary to become a tax expert to understand how possible legislative changes could impact your bottom line in retirement It is necessary however to work with a financial advisor who understands how to build an income strategy that accounts for those possible changes and helps you take the necessary steps to be ready for them when they come

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Did you know Congress makes changes to our tax laws every year Here s a look at some of the changes they could make that may affect your retirement income Individual tax brackets including adding removing or expanding brackets Changes to exemptions credits and standard deductions Deductions for medical expenses Deductions of state and local tax payments Changes to Social Security and Medicare Taxes on selling your home or other real estate Changes to how estates are taxed Where You Put Your Money Matters Different types of accounts have a specific tax status including taxable tax deferred and tax free While many Americans have money earmarked for retirement often that money is stashed in a variety of accounts started at various times throughout their earning years The accounts may not work together to provide an income stream that works effectively for tax purposes Types of Accounts Your financial advisor may present the idea of spreading your assets across four different categories of accounts This method of saving for retirement considers future tax implications and creates a plan to maximize your retirement income Simply put this strategy divides your assets into four types Taxable Tax deferred Income tax free to you but taxable to your estate Income tax free to you and your estate The categories move from 100 taxable to 100 income tax free for you and your estate When preparing for a plan for retirement income your financial advisor may make recommendations for how much of your assets should be allocated to each account type If you currently have money saved you may need to consider redistributing some of your existing assets into different categories A financial advisor can help you determine which assets might be available for repositioning Contact a qualified financial professional today to find out how you can make your investments more tax efficient and possibly lower your future tax bill The only difference between death and taxes is that death doesn t get worse every time Congress meets Will Rogers

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Consider a Roth IRA Eligible taxpayers under age 50 can contribute up to 6 000 in a Roth IRA in 2020 Eligible taxpayers age 50 and older can contribute an extra 1 000 You won t receive an income tax deduction for your contribution but your money will grow tax free You also can withdraw contributions tax free at any time After you reach age 59 and the account has been open for at least five years withdrawals will not be taxed at all And you don t have to convert all of your funds to a Roth IRA partial conversions provide some flexibility in how much you pay in taxes today Because converting a traditional IRA or other qualified assets to a Roth IRA is a taxable event and could result in additional impact to your personal tax situation including but not limited to a need for additional tax withholding or estimated tax payments the loss of certain tax deductions and credits higher taxes on Social Security benefits and higher Medicare premiums be sure to consult with a qualified tax advisor before making any decisions regarding a potential Roth conversion Please keep in mind that due to recent tax law changes it is no longer possible to undo a conversion through recharacterization Giving to Future Generations When planning your estate you should consider the funds you plan to gift before your death as well as the money you wish to distribute after you re gone Types of accounts that can accomplish these goals might include life insurance accounts set up for minors funds to be given to charitable organizations and money designated as gifts to loved ones In 2020 you can give up to 15 000 to an individual each year without triggering a federal gift tax consequence How much should you have in each category That depends on you your goals for retirement how much you want to leave to heirs and much more Your financial advisor can help you devise a strategy customized to meet your personal needs Get Started Today Planning for retirement income starts with a plan for minimizing taxes in retirement a tricky situation since it s difficult to know what the future might hold Your financial advisor can provide recommendations for tax efficient tools and financial vehicles available to help you reach your goals He or she also can work with other qualified professionals such as a tax accountant or estate planning attorney to implement all the tools to make your strategy work efficiently and effectively But don t wait It s important to start now to help make this strategy work in the future Schedule a retirement income analysis today and get a customized strategy for your unique tax situation IRS Nov 15 2019 IRS provides tax inflation adjustments for tax year 2020 https www irs gov newsroom irs provides tax inflationadjustments for tax year 2020 Accessed Dec 11 2019 Daniel Kurt Investopedia Dec 23 2019 What Is the SECURE Act and How Could It Affect Your Retirement https www investopedia com what is secure act how affect retirement 4692743 Accessed Jan 9 2020 Social Security Administration Benefits Planner Income Taxes and Your Social Security Benefit https www ssa gov planners taxes html Accessed Dec 11 2019 4 IRS Aug 23 2019 Topic No 410 Pensions and Annuities https www irs gov taxtopics tc410 Accessed Dec 11 2019 James Chen Investopedia May 21 2019 Non Qualifying Investment https www investopedia com terms n non qualifying investment asp Accessed Dec 11 2019 Troy Segal Investopedia Nov 21 2019 Roth IRA https www investopedia com terms r rothira asp Accessed Dec 11 2019 Bill Chappell NPR Feb 13 2019 U S National Debt Hits Record 22 Trillion https www npr org 2019 02 13 694199256 u snational debt hits 22 trillion a new recordthats predicted to fall Accessed Dec 11 2019 8 Kathleen Romig Center on Budget and Policy Priorities June 5 2019 What the 2019 Trustees Report Shows About Social Security https www cbpp org research social security what the 2019 trustees report shows about social security Accessed Dec 11 2019 Peter G Peterson Foundation April 30 2019 Budget Basics Medicare https www pgpf org budget basics medicare Accessed Dec 11 2019 10 IRS Dec 4 2019 Retirement Topics IRA Contribution Limits https www irs gov retirement plans plan participant employee retirement topics iracontribution limits Accessed Dec 11 2019 11 IRS Dec 11 2019 Frequently Asked Questions on Gift Taxes https www irs gov businesses small businesses self employed frequently asked questions on gift taxes Accessed Dec 11 2019

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Prepared on behalf of Our Locations Corporate Office 14155 N 83rd Ave Suite 144 Peoria AZ 85381 Phone 623 974 0300 Fax 623 974 0330 Tempe Office 600 E Rio Salado Pkwy Suite 102 Tempe AZ 85281 Phone 480 912 4500 fullertonfp com Fullerton Financial Planning FFP is an independent financial services firm and uses a variety of different investment methods Investing involves risk including the potential loss of principal Investment advisory services are offered through Kingdom Financial Group LLC KFG an SEC Registered Investment Advisor KFG maintains a co advisory relationship with AE Wealth Management Neither the firm nor its agents provide tax or legal advice This is designed to provide general information on the subjects covered It is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote market or recommend any tax plan or arrangement The firm providing this information is not permitted to provide tax or legal advice and all individuals are encouraged to consult with a qualified tax professional prior to making any decisions about their personal situation Information and opinions contained herein that have been obtained from third party sources are believed to be reliable however accuracy and completeness cannot be guaranteed 1050447A Content prepared by Advisors Excel

Are you paying too much in taxes?