Kansas City, KS / ACCESSWIRE / March 13, 2020 / It's that time of year again. With only a little over a month until the April 15th deadline to file your taxes, you need to get started if you haven't already. If you are a recent retiree, make sure to discuss that fact with your accountant, or do your own homework, advises James L. McEnerney. There may be some major changes when it comes to your federal and state income tax.
Certified Financial Manager James L. McEnerney says that there are also some tax tips that you might not be aware of - so read on to see if any of these apply to your situation.
Continue Paying into Your IRA
If your spouse is still working, they can continue adding to the nest egg that is your individual retirement account, or IRA, to the tune of $7,000 per year. A traditional IRA allows spousal contributions until the year when you, the owner of the IRA, turn 70 ½. With a Roth IRA, there's no age limit. All that's required, James L. McEnerney explains, is that your spouse has enough earned income to fund your account, as well as his or her IRA.
Understand Required Minimum Distributions
Required minimum distributions, or RMDs, are amounts of money that retirees are obliged to withdraw from traditional IRAs and employer-sponsored retirement plans. Individuals are required to begin RMDs from their IRAs no later than the April of the year after they have turned 72. Otherwise, they will be subject to a federal penalty.
For employer-sponsored retirement accounts, the timeline might be different, but the requirement is largely the same. James L. McEnerney says that it's important to know that RMDs are never eligible for rollovers.
Donate Directly to Charity from an IRA
Although straightforward RMDs are considered taxable income, they don't necessarily spell doom-and-gloom for your finances. There are a couple of workarounds, says James McEnerney. One way to meet your RMD requirement but avoid paying taxes is to make a donation to charity directly from your IRA. You can give up to $100,000 this way.
To Withhold or Not to Withhold
If you worked a traditional salaried job before retirement, you are likely accustomed to your employer withholding tax throughout the year, so that you're not surprised by a nasty tax bill come April. Retirees who receive regular payments from a pension, traditional IRA, or 401(k) plan can continue to have money withheld. In fact, that's the default - so if you don't want withholding, you'll have to speak up.
Social Security benefits work a bit differently, however. For these payouts, no tax will be automatically withheld unless you request it by filing a Form W-4V. If you do so, you can choose the rate at which your Social Security is withheld: 7%, 10%, 12%, or 22%, James McEnerney explains.
As with other tax-related requirements, taxation in retirement can be incredibly tricky. Your best bet, says James McEnerney, is to consult with your accountant and let them know of your new retirement status.
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