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Answering Your Questions About Paying Taxes in Retirement

Without careful analysis and planning, taxes can become one of the biggest expenses for retirees -- if not the biggest.

Matt Wilson, Chief Investment Officer and President of Keen Wealth Advisors, recently hosted a webinar discussing the tax issues you could face at four stages of retirement. Today's podcast episode hits on some of Matt's key points and answers important follow-up questions from webinar attendees. Together, this content provides a full picture of how Keen Wealth integrates both annual tax preparation and long-term tax planning into a comprehensive financial plan.

1. “How can I be sure my financial advisor is looking out for my best interests when it comes to minimizing taxes in retirement?”

Start by making sure you're working with a fiduciary who, by law, is required to put your best interests first in every single part of your financial plan.

But, even within that subset of advisors, not all fiduciaries are created equal!

If you're interviewing advisors or reevaluating an existing relationship, ask yourself, “Does this advisor have a clear process that they follow and communicate to me?” Some good signs would be if you're getting semi-regular check-ins from your advisor throughout the year, including during the run up to tax season in early March and in November/December when you can look at tax-advantaged year-end moves, like charitable giving and Roth IRA conversions. I'm a big fan of running through checklists with folks to make sure that my team has all of our bases covered and our clients feel confident in our process.

In addition to annual tax preparation, think about the kinds of conversations you have had or will have with an advisor about your career, family, and retirement goals. A good fiduciary advisor is going to use these details to do some proactive tax planning that could help you reach current financial goals and keep you moving towards a successful retirement.

Thoughtful advisors also tend to go above and beyond when it comes to educating their audience with a steady stream of blogs, webinars, videos, and podcasts on their websites and social media channels. For example, if you go to KeenWealthAdvisors.com and search "taxes" you'll find a couple dozen posts about general tax strategies, recent changes to tax law, and just about anything else you can think of.

2. “Paying additional taxes now can save taxes later if I end up in a higher tax bracket. However, what about the opportunity cost of the taxes paid now that could be invested and compounded?”

We weigh this question quite a bit when we're analyzing potential Roth IRA conversions for folks. In most cases, if someone will end up in a higher tax bracket in the future, it makes sense to pay taxes on a Roth conversion now while you're in a lower tax bracket. In terms of the opportunity cost, while we can't predict what's going to happen to tax rates in the future, remember that withdrawals from a Roth will be tax-free, regardless of what tax bracket you're in once you start tapping your nest egg. There are also no required minimum distributions on Roth IRA accounts, which provides yet another advantage.

Of course, every situation is different, so the calculations of various investment returns, future tax brackets and the timing and source of retirement income that my team runs at Keen Wealth will be tailored to each person or family's specific needs. And tax arbitrage is just one example of the many risks that we're assessing on a regular basis. In my book, Keen on Retirement, I write about a couple who were planning to move into a retirement community that charged a hefty up-front fee for prepaid medical expenses. That's the kind of detail some advisors might not ask about, or one they may even ignore. But it sent my team into action. We coordinated with this couple's CPA and determined that the fee would qualify as an itemized deduction. This allowed us to make a tax-free six-figure Roth IRA conversion in the same calendar year. Coupled with the tax savings, making that Roth conversion is estimated to boost this couple's nest egg by hundreds of thousands of dollars over time.

3. “Do you think Missouri will stop charging an income tax on Social Security income?”

Until recently, Missouri law stated that single filers who made less than $85,000 per year paid no state tax on Social Security benefits. A bill passed by the Missouri legislature in May removed that cap, making Social Security benefits tax-free for all seniors. Next door in Kansas, Gov. Laura Kelly vetoed a package of tax cuts that would have reduced state taxes on Social Security, although she does support reducing Social Security taxes on their own.

Of course, you can't judge tax cuts in a vacuum, as reducing the state's income creates other issues that our representatives have to contend with. But with interest rates and inflation still running relatively high, anything that helps seniors retain some purchasing power is worth celebrating.

Thanks again to Matt Wilson for putting together another valuable webinar, and thanks to all the clients and friends of Keen Wealth who attended and submitted follow-up questions. Matt's Q3 Market Update webinar is just around the corner, so don't forget to join our mailing list if you want to be notified when that's scheduled. And if you have any questions about taxes or any other part of your financial plan, call up Keen Wealth and let's schedule a time to talk.

About Bill

Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019 and the second edition under Financial Risk Management on October 26, 2022. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities. 

The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.

For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.


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