Understanding Retirement Planning and Tax Saving Strategies
The Average American Retirement Plan Has a Major Blindspot
Did you forget to plan for this, too? Some people think saving for retirement and retirement planning are the same thing -- but they're not. Saving for retirement is part of retirement planning. But you also need to figure out how to manage that money, both now and in the future, to help it last as long as possible.
Who owns your retirement savings?
It's natural to think the money in your retirement accounts is yours. You worked for it, you chose to set it aside for your future, and you want to choose how to spend it. But this isn't always how it works.
- When you put money into a tax-deferred retirement account like a traditional IRA or 401(k), the government subtracts your contribution from your taxable income for that year.
- Eventually, though, the government expects a share of your savings. When you withdraw your cash later, you'll pay income taxes on your initial contributions and all of your earnings.
How do you reduce your taxes in retirement?
There are several strategies you can use to reduce your taxes in retirement.
- Use a mix of traditional and Roth accounts
- Stash money in a health savings account
- Give strategically
Remember, too, that tax brackets and even retirement account rules can change over time, so you may have to adapt your approach as you go to keep your retirement taxes as low as possible.