Retirement planning is something that you should consider carefully. We need to be secured financially for our future needs. With retirement planning, you are assured of a safe and secured future. One of the most important things to consider when doing retirement planning is to study tax matters.
It is still possible for healthy individuals who are retired to keep on working way into their retirement years. Income tax laws of different states vary and so you should know what your state law says about income taxes for working retirees. Some states support their earned income and provide them extra privileges. This is not true for all states though, because some state with treat you like anybody else and impose income tax on all the income that you earn from working. Amount of taxes imposed on income earned can also vary from state to state. Transferring to a new state can have tax consequences as well since municipal taxes can be imposed on you.
Other important sources of income for retirees include income from government, military, private pension and other retirement plans. IT is also the state laws that determine if you are to pay taxes for these sources of income or not. There are states, though, that exempt some of these sources from income tax while other states place taxable limits on these sources. Sometimes, you can even get taxed in two states. If you are a former resident of one state, you can be taxed on retirement plan withdrawals. There are federal tax formulas for social security benefits that certain states follow, but other states have their own specified formulas. Reimbursements are not provided by some states.
You should also consider sales and property taxes on your retirement planning; tax deductions are offered on properties bought by retirees while other states provide homestead benefits. You should also consider tax exemptions on food, clothing, drugs, and household goods.
Roth IRA withdrawals are free from federal income tax and penalties. But if your source of income is from annual tax contributions, from conversion from traditional IRA into Roth IRA, or from earnings accumulated from your contribution, this could also be tricky.
Tax deductions only apply to income from annual tax contributions and conversions from traditional IRA to Roth IRA. The earning that you accumulated from your contributions are subject to income tax.
You can opt for income tax withdrawal if you have not opted for Roth IRA. Withdrawing means owing some amount to the income tax. You can also opt for retirement exemption like 401k.
The sure and safest way to legitimize a penalty-free retirement account withdrawal before retirement is by annuitizing the account.
You will still be faced with taxation issues when your retire, so make sure that you are aware of income tax laws of you state, when planning your retirement.