What Is Retirement Tax Planning?

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  • Written By: Geri Terzo
  • Edited By: Shereen Skola
  • Last Modified Date: 09 September 2019
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Individuals often save and invest money throughout their entire career in anticipation of sufficient retirement assets. Often, regulation surrounding the income that is earned in a pension fund or another type of retirement account is protected from excessive taxes by government regulations or agencies. Nonetheless, that money does become exposed to government charges at some point, depending on the way that retirees withdraw the capital. Retirement tax planning involves strategically choosing to receive any monetary benefits at a time and in a manner that is most favorable to the retiree.

Depending on the type of savings plan an individual is relying on, he or she can begin retirement tax planning before the end of a working career is in sight. The laws regulating taxation and the age for exiting the workforce may change, but by keeping up with any new trends a person can prepare to get the greatest possible financial benefit. Federal laws are generally crafted so that capital gains earned in a pension fund lead to certain privileges for investors. Plan members are usually allowed to postpone any tax related to money earned in a pension until it comes time to withdraw the income. There are normally additional financial penalties applied to assets that are withdrawn before a person reaches the approved retirement age in a country.


It may seem attractive to receive retirement assets in one large payment when it comes time to exit the workforce. Indeed, an individual could decide to have the income that has been saved over a career to be distributed all at once. Through retirement tax planning, however, a person could learn that there are some excessive charges associated with receiving benefits in this manner. Instead, it could be more advantageous to immediately transfer the money earned in a corporate pension into an individual plan via a third party custodial firm. In doing so, a person could be guarding the assets from large penalties and instead exposing the earnings to a more reasonable tax rate.

Throughout retirement tax planning, a person is likely to evaluate a set of expectations. These projections are difficult to assess with precision but are tied to any anticipated health care costs or goals for leisure and travel. Although it is difficult to predict exactly how much money will be needed as income in the future, certain generalizations usually help and can support retirement tax planning.

With financial benefits secure in an individual plan, a retiree eventually reaches an age where money is expected to be deducted. Federal obligations are generally paid on these withdrawals. The tax-planning process might involve determining how to budget expenses while protecting money in a retirement account for as long as possible. By doing this, financial burdens may be delayed even longer.



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