If you’ve been contributing to a 401(k) or other tax-deferred retirement account for years, a qualified analysis is an important part of the retirement planning process. An in-depth analysis of your accounts can help you determine your tax exposure in retirement now, which gives you time to plan and adjust your saving and investment strategies to provide a secure and reliable income during your retirement years.
Defining Qualified Analysis: More Than Just a Tax Review
A detailed, qualified retirement analysis is not just about your future tax liability. It’s also a great opportunity to review your overall picture and consider your income needs in retirement. The right retirement planning strategies can minimize your overall tax burden and give you a consistent, pension-like income no matter how long your retirement lasts.
A qualified analysis focuses on qualified retirement accounts, which include 401(k)s, 403(b)s, and traditional IRAs. If your employer offers a defined-benefit plan like a traditional pension, this would also be considered a qualified plan. Because qualified accounts are tax-deferred, you’ll need to pay income tax on the funds you withdraw. These accounts are subject to required minimum distributions (RMDs), so you’ll be required to take a certain amount out each year starting at a specific age, which is currently 73. If you have large qualified accounts, RMDs can lead to a substantial tax burden.
The “How-To”: A Step-by-Step Framework for Qualified Analysis
To start your retirement analysis, you’ll list all of your accounts, both qualified and non-qualified. You and your retirement specialist will look at how much you have saved, your investment allocation, and the types of accounts you’ve used. While a qualified analysis centers around your qualified accounts, you will need to consider your full financial picture. A retirement income specialist can calculate your expected RMDs and use that information along with other income sources like Social Security benefits and non-qualified accounts to estimate your tax bill in retirement. It’s also a good idea to factor in your income needs in retirement. If you have just enough to be comfortable, your tax strategy options will be different than those available if you have much more than you need.
The Tangible Benefits of Proactive Qualified Analysis
Once you reach RMD age, your options for minimizing taxes in retirement are limited. Performing a qualifying analysis now lets you avoid surprises and make a plan based on your goals and needs. You and your retirement specialist can consider options like strategically defunding your traditional IRA to reduce the taxes you owe overall, looking at insurance products that provide a steady income, or using qualified charitable distributions to lower your taxable account value while supporting causes that are important to you. We can also put together an overall income strategy that includes determining the best time to take Social Security and identifying the most tax-efficient order to take money out of your accounts. Let us show you how to take Social Security at FRA ( Full Retirement Age) and create an asset! Possibly even a tax free one! Some strategies require paying more in taxes now to reduce your overall lifetime tax bill, but doing a qualified analysis gives you the opportunity to make an informed decision about your retirement income plan.
Contact Us at Prosperity Group Advisors to Schedule a Qualified Analysis
If you’ve been saving in qualified retirement accounts, it’s probably time to schedule a qualified analysis. Our retirement income specialists can assess your qualified accounts to project your tax bill in retirement and start making a plan to address that tax exposure and ensure that you have a reliable income stream in retirement. You can also check out our YouTube channel for more financial insights. Contact us to schedule a qualified analysis visit today.