Will You Have Tax-Advantaged Buckets in Retirement?

Will You Have Tax-Advantaged Buckets in Retirement? Cornerstone Wealth Management

Will You Have Tax-Advantaged Buckets in Retirement? Cornerstone Wealth Management

You’ll likely have several sources of income in retirement that can be taxed, such as IRA distributions and Social Security benefits. But, do you have any after-tax “buckets” that you can use strategically in retirement to help reduce your tax bill? There may be a few options available to you, so know how they work.

How is a Roth IRA Different from a Traditional IRA?

Many people contribute pre-tax dollars to a traditional IRA during their working years. When money is distributed, it’s taxed at ordinary income rates. In contrast, a Roth IRA is funded with after-tax dollars. A Roth IRA can be a valuable asset in retirement because qualified distributions are not taxed, unlike distributions from a traditional IRA.[1]

What If You Don’t Have a Roth IRA?

Even if you haven’t contributed to a Roth IRA in the past or you’re not eligible to, you may be able to take advantage of the backdoor Roth strategy. Individuals with income over $144,000 and couples filing jointly with income over $214,000 cannot contribute directly to a Roth IRA. Those who are able to can only contribute up to $6,000 per year if under age 50, or $7,000 per year if over age 50.[2] However, anyone has the option to convert any amount from a traditional IRA, 401(k), or similar qualified retirement account into a Roth IRA, regardless of income.

In this case, you would pay tax on what you convert and then be able to withdraw money tax-free later on. Keep in mind that Roth IRA conversions are now irreversible and that money can’t be withdrawn penalty-free until five years after it’s converted, and typically not until age 59 ½.[3]

 Do You Have an HSA?

Not everyone can contribute to a Health Savings Account (HSA), but if you can through your employer, consider doing so. The benefits of an HSA are that contributions are not taxed, funds grow tax-deferred, and can be withdrawn tax-free for qualified medical expenses. Before age 65, you can’t use funds from an HSA to pay for non-medical expenses without incurring a 20% penalty. But, when you turn 65, you only have to pay taxes on withdrawals for non-medical expenses, and you do not have to pay taxes on withdrawals for qualifying medical expenses. Qualifying medical expenses include Medicare Part B and Medicare Advantage plans, prescription drugs, a portion of long-term care insurance premiums, dental, and vision care.[4]

There may be unexpected taxes in retirement that could add to your tax bill. To offset the impact of your taxable sources of income in retirement, you may consider a Roth IRA or an HSA as two of many potential tax strategies. Cornerstone Wealth Management can help you create a long-term tax minimization plan that works with your overall retirement plan. Click here to sign up for a time to come speak to us to learn more.

[1] https://www.investopedia.com/terms/r/rothira.asp
[2] https://www.investopedia.com/terms/r/rothira.asp
[3] https://www.investopedia.com/terms/r/rothira.asp
[4] https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp


The article and opinions in this publication are for general information only and are not intended to provide specific advice or Recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your Individual situation. This content was created by Lone Beacon.

Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser. Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities.

If converting a Traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted Traditional IRA contributions and on all earnings. We suggest that you discuss tax issues with a qualified tax advisor.

Share This Post:
Cornerstone Wealth

SERVICES

Cornerstone Wealth

Schedule a Call

Ready to take control of your financial future? Schedule a call with Cornerstone Wealth Management today.

Join Our Mailing List

FINANCIAL INSIGHTS DELIVERED STRAIGHT TO YOUR INBOX

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Addressing Market Volatility in Today's World
READ OUR LATEST GUIDE

Addressing Market Volatility in Today's World

Planning for retirement is never a “set it and forget it” task. There are unexpected disasters, market drops, and changing laws that could cause retirees to reevaluate their financial situation. Ultimately, there’s no way to predict everything that will cause market downturns. However, you can prepare yourself for one by having a solid financial strategy in place.

What to Consider in Your Charitable Giving Plan
READ OUR LATEST GUIDE

What to Consider in Your Charitable Giving Plan

Congratulations! You’ve decided to give to a charitable organization. Charitable giving is a wonderful way to help further causes you are passionate about and feel good while doing it.

The Importance of Designating Beneficiaries
READ OUR LATEST GUIDE

The Importance of Designating Beneficiaries

When life gets hectic and your to-do list seems endless, it can be easy to let financial planning details slip through the cracks. However, updates to your designated beneficiaries on 401(k) plans, IRA accounts, and other retirement assets is vitally important.

Managing Inflation in Retirement
READ OUR LATEST GUIDE

Managing Inflation in Retirement

You may have noticed that the things you buy regularly have become more costly, and you may be pondering if inflation will stay high. For individuals close to retirement or already retired, it is essential to take measures to protect themselves from the eroding effects of inflation.

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

The Birth of a Grandchild
READ OUR LATEST GUIDE

The Birth of a Grandchild

Congratulations! The arrival of a grandchild is always an exciting time. Since many grandparents wish to assist in covering their grandchildren’s future financial needs, it’s also a good time to consider financial preparations for the future. If you hope to provide funds to your grandchildren, both 529 plans and trusts are beneficial options.

Cornerstone Wealth

WELCOME TO OUR NEW SITE

We've Made Some Big Changes

We’re delighted to introduce our new and improved online space tailored to elevate your online experience.

If you have any thoughts, questions, or if you’d like to schedule a consultation drop us a line. Your insights help us refine our services.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Skip to content