3 Tax Mistakes New Retirees Make That Can Cost You Thousands

Here are three tax mistakes that new retirees make that can cost you thousands.

1. Taking Social Security Too Early

Taking Social Security too early can trigger the tax trap. Although I'll still be taking mine at 62, I've got to be truly careful. If you claim early and you're still working or withdrawing from tax-deferred accounts, you could pay taxes on up to 85% of those benefits. The fix? Either delay benefits or do what I'll do: coordinate your withdrawals to keep your ordinary taxable income down.

2. Not Converting to a Roth Before RMDs Hit

Once you turn 73, you have to start withdrawing from your pre-tax accounts like a traditional IRA or 401k. Even if you don't need the money, your taxable income goes up and can push you into a higher Medicare premium bracket. The solution? Convert some IRA money to a Roth in your 60s when you're in a lower tax bracket.

3. Ignoring State Taxes

Be aware of state taxes, especially in places like Vermont, where you might avoid some federal taxes. Some states still tax Social Security, pensions, and withdrawals from retirement accounts. Moving from a high-tax state like California or New York to low-tax states like Florida or Texas could save you tens of thousands of dollars over a 20-year retirement. Not to mention, Miami sounds pretty nice this time of year.

Conclusion

Remember, taxes don't stop in retirement; they get more complicated. Want to explore any of this further? Tune into my new podcast, Your Money Guide on the Side, by clicking the link in my bio.

Source