When planning for retirement, remember that your financial situation will probably change. Congress recently passed a sweeping tax bill that could change everything from mortgage deductions to retirement savings accounts; it’s critical to understand how these new rules will affect you and what you should do to maximize their benefits of them.
The new tax bill significantly impacts how you plan for retirement, and these changes may require some adjustments to your current strategy.
Here are five tips the new tax bill could impact retirement planning:
1. Make a list of your income sources:
Retirement planning can be complicated, especially with the new tax bill changing how we save and spend money.
As you begin thinking about your retirement plans, starting by making a list of all your income sources is essential. This can include Social Security benefits, pension payments, or any other investments or savings you might have.
- Max out your 401(k) contributions: One of the best ways to save for retirement is by taking advantage of your 401(k) plan at work. This retirement account lets you contribute a certain amount of money to each paycheck stub maker and have that taken out before taxes are withheld, so the more you put in now, the less you’ll pay later in taxes. With the new tax bill making changes to retirement contributions, it’s essential to consider whether or not you should adjust your deferral percentage so that you can save even more.
- Make traditional IRA contributions if you can: If you don’t have a 401(k) plan at work or want to save even more for retirement, it’s essential to take advantage of other retirement savings accounts. One option is to make annual contributions to a traditional IRA through your bank or another financial institution. Just like with the 401(k), these contributions will allow you to put away money each paycheck and reduce your taxable income, which could get you a bigger tax refund or lower your tax bill for the year.
- Look into Roth options: Another popular retirement account is a Roth IRA, which works just like a traditional IRA but offers tax exceptions. With this type of plan, you can withdraw your contributions without penalty. This is great if you find yourself in a situation where you need access to your money earlier than expected. And because you contributed post-tax, you won’t have to pay taxes on any of your qualified Roth distributions when you’re ready to take them out.
- Consider annuities and other retirement products: Several types of retirement products can also help you save for your golden years. Depending on your needs, it might be worth investigating things like annuities or deferred income plans to see if they fit within your overall financial strategy.
2. Think about postponing Social Security benefits:
One of the most significant impacts of the new tax bill on retirement planning is how it may affect Social Security benefits. Many experts recommend that you postpone claiming Social Security benefits until you reach your full retirement age, which will vary depending on your birth year. Doing so can result in a more considerable monthly benefit and may help offset some of the tax increases that come with the new tax bill.
For example: If your full retirement age is 66 and you delay claiming benefits until you reach that age, you will receive an additional 8% in Social Security payments for each year you wait. If your use is $1,000 per month at your full retirement age, you could potentially end up with a monthly cost of $1,320 if you wait until age 68 to claim.
Be sure to consult with a financial advisor or tax professional about your specific situation, as there may be other important factors to consider when planning for retirement in light of the new tax bill.
3. Be mindful of potential changes to mortgage deductions:
One area of the new tax bill that could significantly impact retirement planning is the possibility of significant changes to mortgage deduction rules. Under current law, homeowners can deduct the interest they pay on up to $1 million in mortgage debt, which can help significantly reduce their overall tax burden.
However, some experts predict that this deduction may be eliminated or significantly reduced in simulation, transaction, or tax payment.
One thing to keep in mind is that the new rules may not take effect immediately and could be phased in over time, so it’s essential to stay up-to-date on any changes and how they may affect your specific situation.
4. Mitigate RMDs with Qualified Charitable Distributions:
Another way the new tax bill may impact retirement planning is by changing rules around withdrawals from tax-deferred accounts.
Under current law, required minimum distributions (RMDs) must be taken out of retirement funds starting at age 72. However, many experts recommend one strategy for mitigating RMDs: “qualified charitable distributions.”
This loophole allows you to make tax-free charitable contributions from your traditional IRA, which helps reduce the amount of money needed to be withdrawn from those accounts.
5. Keep Track of Your Medical Expenses:
One area that may see changes under the new tax bill is medical expenses. Current law allows for a deduction on eligible medical expenses, up to 10% of your adjusted gross income (AGI). However, some experts predict that this deduction could be eliminated or reduced in coming years, which may impact retirees responsible for paying large medical bills.
It’s, therefore, essential to keep track of your medical expenses and plan so that you can take full advantage of any tax deductions that may be available in the future.
Overall, staying up-to-date on the latest tax changes and how they may impact your retirement planning is essential. While the new tax bill is likely to bring some challenges, there are also many opportunities and strategies that you can use to help mitigate any potential impacts. By following these tips, you can better prepare for retirement in the years to come.
This information has been helpful for you in navigating the new tax bill as it relates to retirement planning. Good luck!
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