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Taxes Can Reduce Retirement Savings Growth
Taxes on withdrawals and required distributions can lower the amount retirees keep from their accounts. Planning steps can help limit the impact of those taxes.
May 17, 9:10 AM·1m read1 source
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Taxes on withdrawals from retirement accounts can reduce the amount individuals keep after they stop working. Required minimum distributions from traditional accounts are taxed as ordinary income and can push some retirees into higher tax brackets.
IRAs and 401(k) plans require withdrawals that are taxed at ordinary income rates. Roth IRAs allow tax-free withdrawals if the account has been open for at least five years and the owner is at least 59½.
Converting traditional IRA funds to a Roth IRA can shift future tax liability. Spreading conversions over several years may keep annual taxable income lower. Some retirees also consider charitable donations from their accounts to reduce taxable income.
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