NEW YORK (2/4/14)--Baby boomers are headed into retirement with unprecedented tax liabilities unless they look ahead with careful pre- and post-retirement tax planning (Reuters via Newsday Jan. 24).
While tax-deferred retirement accounts such as 401(k)s and individual retirement accounts gave pre-retirees a welcome tax deduction when they were putting money in, those accounts may turn into a tax curse later. Boomers who concentrate all retirement savings in tax-deferred accounts will be paying income taxes on most of the money they live on.
Social Security benefits also are taxed, under a complicated formula. For single taxpayers with earnings (including half of their Social Security benefits) over $25,000, 50% of benefits are taxed. For joint filers, the threshold is $32,000. At incomes above $34,000 for singles and $44,000 for joint filers, 85% of benefits will be taxed. Bottom line: You'll pay a tax on at least some of your Social Security benefits unless your income is very low.
Ease your future tax burden by planning ahead:
For related information, read "Retirement: More to Prepare Than Finances" and "Inherited IRAs, Gifting, and Taxes" in the Home & Family Finance Resource Center.