Avoid The Retirement Tax Trap

Taxes don’t disappear in retirement. In fact, for many people they become even more important once income starts coming from savings instead of a paycheck.

A common challenge is that much of a retiree’s savings sits in pre-tax accounts like traditional IRAs or 401(k)s. Those accounts helped during the saving years, but withdrawals are fully taxable. In some situations, pulling extra income can push retirees into higher tax brackets or increase the taxable portion of Social Security. This effect is sometimes called the tax torpedo.

One way to manage this is by thinking about retirement savings in three tax buckets: tax now, tax later, and tax free. When those buckets are balanced, retirees may have more flexibility in how they generate income and manage taxes over time.

In this video, Lynn Berry and Dan Lemens explain how these tax buckets work and why tax planning is the first pillar of our TRIPP® Process.

You can also explore more tax-related topics in our video library, including a deeper explanation of the tax torpedo and other retirement tax strategies.