Last week, I was chatting with a very nice couple that are nearing retirement.
We touched on a few things during this initial call and the topic of taxes came up. Part of our work as Certified Financial Planner™ practitioners includes much more than just focusing on investments and taxes are certainly an area we spend a fair amount of time on.
This couple was telling me they got back $7,500 on their federal return and were quite happy about it.
Over the years, folks that got big refunds have told me they felt like they “won” at tax time.
Even though it may feel better to get a refund than to owe money, remember this:
Tax refunds are OUR money. Other than receiving a tax credit, a refund is simply an interest free loan that you gave Uncle Sam.
(An example of a tax credit could be for installing solar panels, buying certain electric cars, or even for credits for adoption)
Ideally, our goal should be to minimize the amount we pay in taxes. Note, sometimes paying more in taxes in a given year is okay if it leads to lower lifetime taxes.
As Arthur Godfrey said, "I'm proud to be paying taxes in the United States. The only thing is, I could be just as proud for half the money".
If one is working, paying less in taxes can be accomplished by contributing to your retirement plan, funding your Flexible Spending Account (FSA), if eligible, contributing to a Health Savings Account (HSA). If one is charitably inclined, there are strategies for gifting that may be more tax advantaged than just writing a check.
From the short conversation I had with this couple, in my experience, it didn’t appear their taxes would go down a lot once they were retired. Why?
They were both nearing their ages when Required Minimum Distributions (RMD’s) would be required from retirement plans, and they had both started collecting Social Security a couple of years prior. (If we had been working together before they started Social Security, it may have made sense to hold off on starting as well as incorporating other strategies
When it comes to taxes, there is a lot to consider.
Thinking about retirement or feel you are paying too much in taxes? I'm here to help. Feel free to reach out to me if you have any questions. Click HERE to set up a quick complimentary call.
Here is another recent blog article on taxes that might be of interest… Big changes to retirement plans in 2023
Or..... Reducing your tax bill for 2023
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In good health.
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
*This blog article is meant to be just a simple primer. I'm happy to speak in more detail one on one.
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