4 tax issues to consider in retirement

February 12, 2019

What do you imagine when you think about retirement? A less stressful life? Time for family, new hobbies and maybe some travel? Taxes? That’s right, even in retirement, many people still have to pay taxes. The Oklahoma Society of Certified Public Accountants (CPAs) recommends you consider taxes in your retirement planning so you can be confident your savings will cover all your needs. Here are some issues you’ll need to keep in mind.


1. Social Security: Do you expect Social Security benefits will be your only source of income in retirement? Many people find Social Security doesn’t cover all their retirement needs, so it’s in your best interest to plan to supplement your retirement income by saving as much as possible in a workplace retirement account or other type of retirement plan before you retire. Building retirement savings will probably mean at least some of your Social Security income will be taxed (depending on your combined income from Social Security and other sources), but it will also give you greater financial security. Remember you can have taxes withheld from your monthly Social Security payments and avoid having to make quarterly estimated payments. Your CPA can answer all your questions about possible taxes on Social Security benefits and retirement planning in general.

2. Retirement accounts: If you contributed pre-tax income to a retirement savings account, you will likely be taxed on distributions from that account. This includes distributions from a traditional IRA, 401(k), 403(b) or 457(b) plan. It also applies to distributions from accounts for small businesses, such as SEP-IRAs, SIMPLE IRAs and SARSEPs, as well as income from an annuity held in an IRA or similar retirement account. Your distributions from a Roth IRA, on the other hand, are tax free. Once again, your CPA can offer advice on the best retirement account solutions for you.  

3. Required minimum distributions: You must begin taking required minimum distributions (RMDs) from most retirement accounts, including traditional IRA and workplace retirement accounts, once you reach the age of 70½. Your annual required minimum distribution amount is generally based on your life expectancy and your account balance. You can always take more than the RMD, of course, and all distributions will be included in your taxable income. Want to avoid taxes on retirement distributions? There’s no RMD for a Roth IRA, and distributions you take from these accounts are tax free. Don’t need the money from your RMD? A qualified charitable distribution to the charity of your choice lets you donate some or all of your RMD, which lowers your taxable income (and your tax bill).

4. Home sales: Many people downsize or move closer to family when they retire. If you sell your home at a profit, will you have to pay taxes on that gain? Generally not, if you owned the home and used it as your main residence for at least two out of the last five years leading up to the date of the sale. The maximum exclusion is $500,000 for a married couple filing jointly and $250,000 for a single filer. Additional exceptions may apply, so consult your CPA for advice on your situation.

Whether you’re ready for retirement or planning for the long-term, your CPA can offer insightful, personalized advice. Turn to him or her with all your financial questions. In Oklahoma, you can get a free CPA referral and free 30-minuted consultation from www.FindYourCPA.com. For more money tips, visit www.KnowWhatCounts.org, like Know What Counts on Facebook, and follow Know What Counts on Twitter.

With more than 6,500 members in public practice, industry, government and education, the OSCPA is Oklahoma's only statewide professional association of CPAs. Since 1918, the organization has continued to provide professional education, conduct quality reviews and promote and maintain high standards of integrity and competence within the accounting profession. The Money Management (Dollars & Sense) columns are a joint effort of the AICPA and the Oklahoma Society of CPAs, as part of the profession’s nationwide 360 Degrees of Financial Literacy program.