​Do you use a 401(k) or IRA to save for retirement? You’re not alone. These types of accounts are popular for many reasons, but one of the biggest is their tax treatment. As you may know, these accounts are tax-deferred. That means you don’t pay taxes on growth as long as the funds stay inside the account.
 
Qualified accounts may also offer upfront tax benefits for your contributions. Contributions to your 401(k) come out on a pre-tax basis. That reduces your taxable income, which in turn reduces your taxes. Contributions to an IRA.may also be tax-deductible, depending on your income level.
 
Qualified accounts aren’t completely tax-free, however. While you may get a deduction upfront and taxes may be deferred over time, eventually, you do have to pay taxes on these assets. That time is usually when you take withdrawals in retirement.
 
Most distributions from qualified accounts are taxed as income. That could be problematic if you plan on using your 401(k) or IRA to generate most of your retirement income. You could create high levels of taxable income that may create a significant tax liability, which could reduce your net income and your ability to live a comfortable lifestyle.

Fortunately, you can minimize your tax burden by planning ahead. Every situation is unique, so there’s no universal strategy that is right for everyone. However, the following three-step process can help you project your tax liability in retirement and take steps to control it.

List all your sources of retirement income. 

The first step in managing your retirement taxes is to project just exactly where your income will come from. In fact, this isn’t just useful for tax planning; it’s important for your entire retirement strategy.
 
Make a list of all your potential income sources. The list could include things like:

• 401(k) or other employer-sponsored plans
• Traditional IRA
• Roth IRA
• Annuities
• Social Security
• Defined Benefit Pension
• Business income
• Real estate income
• And more

Categorize them by tax treatment. 

Once you have your list, you can start to categorize your income sources according to how they are taxed. Some income sources will likely be taxable, like:

• Part-time work wages
• 401(k) distributions
• IRA distributions
• Investment income
• Business and real estate income

 
Other types of income may be tax-free, such as:

• Municipal bond interest
• Life insurance distributions
• Roth IRA withdrawals

 
And finally, there could be some sources of income that simply require more research. They may be taxable, but also may not be. It could depend on your total taxable income or perhaps other factors. These types of income could include:

• Annuity payments
• Social Security
• Defined Benefit Pension
• And more

Meet with a professional and develop a tax strategy. 

The final step is to work with a professional to create a detailed projection of your potential income and tax liability in retirement. They can estimate your income and your possible taxes each year. They can then work with you to develop a strategy that minimizes tax payments.

For example, they might recommend the use of tax-free income from municipal bonds or a Roth IRA. They could suggest the use of life insurance to create tax-free income. They may recommend that you delay Social Security or choose a different pension benefit to reduce your taxable income. A financial professional can help you find the strategy that is best for your needs.
 
Ready to develop your retirement tax strategy? Contact us today at America’s Financial Center. As a CPA & Wealth Management Firm we look at all your financial needs (tax, investments, retirement, and insurance) because they are all intertwined. We can help you document your goals, clarify your risk tolerance, and create a comprehensive policy that keeps you focused on the long-term.
 
Article was written by Creative One through third party content creation program.
 
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
19662 - 2020/1/16

It’s been a volatile few weeks in the financial markets. Up until late January, we were still enjoying the longest bull market in history. In three short weeks, the bull market has ended, and we’ve entered bear market territory. Between Friday, February 21 and Monday, March 16, the Dow Jones Industrial Average has dropped by 30.37%.1
 
The rapid decline has left many investors with two questions:

• How much further will markets drop?
• What can I do to protect my assets?

 
There’s no easy answer to the first question. If history is any guide, eventually the decline will stop, and the markets will recover. The average bear market lasts 13 months, followed by a 22-month recovery.2 However, it’s impossible to predict when that recovery might begin.
 
The second question is even more difficult to answer. There are certainly protection options available, but not all options are right for all investors. Your strategy should be based on your unique needs, goals, and tolerance for risk. Below are a few options you have available:

Shifting to a more conservative allocation. 

Changing your allocation to a more conservative strategy is always an option. Many people become more risk averse as they approach retirement. If you haven’t reviewed your allocation in years, this may be the right time to do so.
 
Of course, a more conservative allocation could limit your participation in a recovery when it happens. Work with a financial professional to find an allocation that limits your exposure to further losses, but still gives you an opportunity to participate future upside.

Staying the course. 

Another option is to stay the course and stay invested in your current allocation. Again, that may expose you to further losses, but it could also put you in a position to take advantage of a recovery when it does happen.
 
Again, it’s impossible to predict when a recovery could happen, but history can provide some insight. The last bear market started in October 2007 and lasted until March 2009, spanning much of the financial crisis. The S&P 500 dropped 56.8%. However, the subsequent bull market (which just ended) lasted more than 10 years and saw the S&P 500 increase by more than 400%.3
 
The 2000 bear market was triggered by the tech bubble. It lasted nearly 30 months and saw a total decline of more than 49%. It was followed by a 60-month bull market with a return of more than 100%. The 1990 bear market lasted only three months and had a decline of 20% and it was followed by a 113-month bull market with a cumulative return of 417%.3
 
Bear markets are often followed by bull markets. The question is whether you can stick it out through further losses. Again, your financial professional can talk through your options with you and help you decide which path is right.

Use risk-protection vehicles. 

Another option is to take advantage of market risk-protection vehicles like annuities. There is a wide range of different types of annuities that can limit your exposure to market risk and protect your future. *For example, some guarantee your principal against loss, but also offer upside growth potential. Others guarantee your future retirement income, no matter how the market performs in the future. A financial professional can help you determine if an annuity or other risk-protection tool is right for you.
 
*Annuity Disclosures: Guarantees are based on the insurance company’s ability to pay and early withdrawal may cause a loss of principal due to withdrawal charges. Purchasers may experience fees and expenses, including withdrawal charges, market value adjustments, rider premiums, etc. which may affect contract values. Income riders are optional benefits available with fixed index annuities for an additional annual fee. A growth rate is used to calculate the income amount and is not credited to the annuity value nor tied to the performance of the benchmark index of the annuity.
 
Ready to protect your nest egg from the coronavirus? Contact us today at America’s Financial Center. As a CPA & Wealth Management Firm we look at all your financial needs (tax, investments, retirement, and insurance) because they are all intertwined. We can help you document your goals, clarify your risk tolerance, and create a comprehensive policy that keeps you focused on the long-term.
 
1https://www.google.com/search?safe=off&sa=X&tbm=fin&sxsrf=ALeKk02Fk2yPH2_A7nU0wQGE5IUIixHyGQ:1584394531365&q=INDEXDJX:+.DJI&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ5-rm4Rrh4RVgp6Ll4eQIAqJT5uUkAAAA&ved=2ahUKEwiBmOfJ-Z_oAhWUW80KHc2dA3MQ3N8BMAJ6BAgCEAM#scso=_SfFvXsWJMJe1tAbX6pm4BQ1:0
27https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html
3https://www.cnbc.com/2020/03/14/a-look-at-bear-and-bull-markets-through-history.html
 
Article was written by Creative One through third party content creation program.
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
19926 - 2020/3/17