Tax Surprises for the Newly Retired

Planning for retirement? Don’t get caught off guard by these potential tax surprises.

You’ve got it all planned out. Your retirement savings accounts are full, you have started receiving Social Security benefits and your pension is ready to go. Everything is planned. What could go wrong? Here are five surprises that can turn your plan on a dime.

1. Health emergencies and long-term care. When a simple procedure could cost thousands, health care costs can put a huge dent in your plan. Long-term care can also cost thousands per month. Have you planned for this? If your health insurance is not adequate, you may need to pull money out of your retirement accounts to pay the bills. While this withdrawal may not be subject to a penalty, it might be subject to income tax if the funds are from a pre-tax account.

Tip: Look into creative ways to enhance your health insurance coverage including supplemental health insurance and prescription drug cost coverage. Consider long-term care insurance and other alternative ways to reduce your potential living needs.

2. Taxability of Social Security benefits. If you have excess earnings, your Social Security benefits could be reduced. Even worse, if you are still working, your benefits could be subject to income tax.

Tip: If this impacts you, consider conducting a tax planning session to better understand your options including the possibility of delaying the receipt of Social Security benefits.

3. Your pension plan. Understand if your pension is in good financial health. Pensions will often offer a lump-sum payout option for you. Should you take it?

Tip: Review your pension plan’s annual statement. How solid is it? If there are risks, consider cash out alternatives and planning for the potential drop in future income.

4. Minimum required distributions. Forgot to take your minimum required distribution from your retirement plans this year? The tax bite, however, could be quite a surprise in future years so you will need to actively manage this aspect of your retirement or a bite could be taken out of your retirement plans.

Tip: Select a memorable date (like your birthday) to review your distribution and take action so this tax surprise does not impact you.

5. Future tax rates. The federal government is spending over $1 trillion more than it brings in each year. Cash-starved states are also looking for new tax revenue. So don’t be surprised when future tax rates continue to rise during your retirement.

Navigating the tax surprises that come with retirement can be complex, but with proper planning and guidance, you can avoid costly mistakes and make the most of your retirement income. At Syriac CPA Tax and Accounting Services, we specialize in helping retirees optimize their tax strategies, ensuring you’re fully prepared for your financial future.

Contact us today at (562) 202–9697 or (949) 397–2337 to schedule a free consultation and let our experienced team guide you through every step of the process. Your retirement should be stress-free — let us help you keep it that way!