Retirement is supposed to be your golden years, a time to kick back, relax, and enjoy the fruits of your labor. But, if you’re not careful, taxes can throw a wrench in your plans. Navigating the tax landscape can be tricky, and missteps can cost you big time. That’s why working with a certified financial planner is a smart move. They can help you sidestep common pitfalls and keep your retirement finances in check.

Let’s dive into some of the most common tax issues retirees face and how to avoid them.

Don’t Ignore Required Minimum Distributions (RMDs)

When you hit the age of 73, the IRS expects you to start taking Required Minimum Distributions (RMDs) from your traditional IRA, 401(k), or other retirement accounts. It’s not just a suggestion—it’s the law. Miss an RMD, and you’ll get hit with a hefty penalty of 25% of the amount you should have taken. Yikes! So, make sure you know when you need to start withdrawing and how much. Better yet, have a plan in place long before that time comes.

Watch Out for Social Security Taxation

Think Social Security benefits are tax-free? Think again. Depending on your income level, up to 85% of your Social Security benefits could be subject to federal taxes. The kicker? It doesn’t take a lot of extra income to push you over the threshold where Uncle Sam takes a bigger bite. To keep more of your benefits in your pocket, consider strategies like delaying Social Security, withdrawing from Roth IRAs, or managing other income sources carefully.

Avoid the Medicare Surtax Trap

If your income in retirement is higher than expected, you could be hit with an additional Medicare surtax. This surtax applies to high-income individuals and is based on your modified adjusted gross income (MAGI). The extra tax can catch retirees off guard, especially if they’re pulling in more income from investments, property sales, or other sources. To avoid this nasty surprise, work with a certified financial planner to manage your MAGI and keep it below the surtax threshold.

Don’t Forget State Taxes

Federal taxes aren’t the only game in town. Many states also tax retirement income, which can take a bite out of your nest egg. Some states tax Social Security benefits, pension income, and withdrawals from retirement accounts. Others have no income tax at all. Before you settle down in your dream retirement spot, make sure you understand the state tax implications. A little planning now can save you a lot of headaches—and money—down the road.

Taxes in retirement don’t have to be a nightmare, but they do require some careful planning. By being proactive and working with a certified financial planner, you can avoid common tax issues and keep more of your hard-earned money in your pocket.

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