Your future is tied to how much money you have set aside and how much you are able to earn so that you can survive in the long term.
Knowing what taxes you have to pay is an essential part of your future. You have to know how to budget in your current life, right now, as well as for the next few years and beyond.
That includes how much you will be taxed and at what rate.
The recently approved Tax Cuts and Jobs Act (TCJA) has some significant reforms, including some that affect retirees. New rules say that men who are married and filing jointly will have an increased standard deduction of $24,000, up from $13,000. A massive jump of $11,000!
In addition, if you’re a single taxpayer, or if you’re married and file separately, where you were previously only allowed $6,500, you now have a healthy $12,000 standard deduction.
There were also changes to retirement savings contributions. If you are putting money into a 401(k), 403(b) and most 457 plans, as well as the Thrift Savings Plan, you are now allowed to contribute $500 more each year.
Depending on what state you live in, you may find different rules apply when it comes to being taxed. Currently, seven states do not tax individual income – retirement or otherwise: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Only 13 states impose a tax on Social Security income.
Working out where you want to live when you retire might mean you take into account how much tax you have to pay. Some states have far higher taxes than others. Minnesota was ranked the worst state to retire in for taxes.
The North Star State taxes Social Security income to the same extent as on your federal return. The only pensions that are not taxable are from the military. Distributions from individual retirement accounts and 401(k) plans are taxable too, so you get hit from all sides.
If you don’t mind cold weather, then Wyoming might be the best bet. It was ranked the best place to retire for tax breaks, but the cost of living ranking was high at 28.
Figuring out how much you have to pay when your taxes are due is the best way to know exactly how much you’ll have available when you retire. If you just look at what is saved or will be paid without the taxes taken out can give you a false picture of your future. You deserve better than that.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC