In retirement

When you retire and start to use your investments there are a variety of tax changes you’ll experience, pitfalls you’ll want to avoid, and investment options you can use to avoid depleting your funds too quickly.

Upon turning 72 the federal government requires retirees using a traditional IRA to take a Required Minimum Distribution (RMD), the amount of which is based on the current expected lifespan. Failure to do so can result in penalties as high as 50% of the required amount. This may have a bearing on the tax bracket you fall under, so it may help to talk to a New Account Representative to figure out when to start taking withdrawals. People using a Roth IRA are not required to take out a required minimum distribution.

Another way to avoid higher or unnecessary taxes - while generating income - is by investing in tax-free, tax-deferred, or low taxed investment options such as municipal bonds, index funds, and real estate investment trusts (REITs). Each offer different advantages that can help lessen your tax burden and potentially increase your income. Learn more with our in-depth articles below.

By now, you should be pretty used to budgeting and paying attention to the amount of cash going out and coming in. And although the amounts may have changed, it’s important to keep the skill and discipline of creating and following a budget.

When creating your retirement budget, be sure to consider using taxable investments first, such as capital gains, CDs, real estate gains, and income from part-time work. Then you can move on to tax-deferred sources like 401ks, and later tax-free sources like life insurance and Roth IRAs to avoid losing the benefit of reduced tax rates.