This is the “most burning question” wealthy Americans say they have about retirement. Are you asking yourself the same question?

By admin On Sep 20, 2024 0

Retirement is a big change, financially, logistically and emotionally. And as you plan for it, you're likely to come up with a list of questions you want answers to.

Recent data A Northwestern Mutual study found that even wealthy Americans have concerns about their retirement finances.

Don't miss it

Car insurance premiums in the United States are sky-high and getting worse. But 5 minutes could help you… paying only $29 a month
Earn juicy quarterly income from this $1 billion private real estate fund, even if you're not a millionaire. Here's how to get started with just $10
These 5 magical money moves will propel you up the U.S. net worth ladder in 2024—and you can complete each step in a matter of minutes. Here we explain how

Some of the most frequently asked questions are how much money they will need to retire comfortably and how likely their savings are to outlast them. But the most burning question millionaires have in the context of retirement is how taxes will affect them once their careers are over.

The good news is that 61% of millionaires are making plans to reduce their tax burden in retirement. But you don't have to be a millionaire to take advantage of some of the strategies they're using.

How to Use Roth Accounts Strategically

Roth IRAs and 401(k) accounts offer a number of financial benefits to account holders. First, they allow for tax-free gains on investments. Second, they allow for tax-free withdrawals during retirement if the accounts have been open for a long time. at least five years.

If you keep long-term savings in a Roth account, you could pay much less to the IRS once you retire. Plus, a Roth account allows you to continue enjoying tax-free gains on your investments during retirement.

One challenge that millionaires might face is exceeding their income limits for direct contributions to a Roth IRA. Single taxpayers earning more than $161,000 will not be able to make contributions in 2024, as will married couples earning more than $240,000.

However, you can work with an accountant or financial advisor Making strategic conversions from a traditional IRA to a Roth IRA requires careful planning, as there are tax implications the year you roll the money over to a Roth IRA. But then you get the benefit of tax-free withdrawals later. Plus, Roth 401(k)s have no income limits, so they're open to anyone with access to an employer plan that includes a Roth option.

Read more: The cost of living in the United States is still out of control Use These 3 'Real Assets' to Protect Your Wealth TodayNo matter what the US Federal Reserve does or says

Slowly withdraw from traditional retirement plans

The nice thing about Roth withdrawals is that they don't count as taxable income after you turn 59½. But having higher taxable income in retirement from other sources doesn't just mean paying more money to the IRS. It could also mean facing surcharges known as income-related monthly adjustment amounts, or IRMAAs, on your Medicare Part B and D premiums.

If you have some or all of your savings in a traditional retirement plan, gradually withdrawing smaller amounts could keep you in a lower tax bracket for a good portion of your retirement. But you'll need to keep in mind required minimum distributions (RMDs), which can increase your taxable income and your tax burden at the same time.

RMDs take effect from age 72 (or 73 if you turn 72 after Dec. 31, 2022). And the exact amount you must withdraw is calculated based on your account balance and your life expectancy. But you should know that if you donate part (or all) of your RMD to a qualified charity, that income won't be taxed.

Maximizing HSAs

HSA, or Health Savings Accountsallow savers to contribute pre-tax funds toward future health care expenses. Investment earnings in health savings accounts (HSAs) are tax-free, as are withdrawals used for qualified health care expenses.

Carrying HSA funds into retirement is another great way to minimize taxes. Instead of making potentially taxable withdrawals to cover medical costs, using an HSA to cover those same bills allows you to access tax-free funds.

Eligibility for an HSA depends on your health plan. This year, you may qualify If your health insurance plan has a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage. Your out-of-pocket maximum also cannot exceed $8,050 for individual coverage or $16,100 for family coverage. Since a typical 65-year-old is expected to spend $157,500 on health care during retirement according to FidelityIt is helpful to arrive at retirement with as large an HSA balance as possible.