Retirement is a chapter of life that, for some, may signal leisure, freedom, and working by choice, not necessity. However, this phase usually requires retirement income from retirement savings withdrawals. Different retirement account types have different taxation when withdrawing monies: taxable, tax-deferred, and tax-free.

This article discusses investment strategies and taxation, which affect the growth and value of retirement savings accounts.

Taxable accounts

Taxable accounts have fewer restrictions on contributions and withdrawals, but the returns are subject to taxation. Investing in taxable accounts is done with after-tax money and includes:

· Brokerage accounts

· Individual stocks

· Real estate and other hard assets (metals)

· Mutual funds, exchange-traded funds (ETFs), index funds

Tax-deferred accounts

Traditional Individual Retirement Accounts (IRAs) and 401(k)s are the most common retirement savings accounts and offer tax-deductible contributions. A tax deduction implies that the amount contributed to these accounts is deducted from taxable income for that year, thereby reducing one's tax bill. If you fall into a high tax bracket, the tax savings from making these deductions can be substantial.

Many seek financial professionals to help them with investment guidance and financial management. This management involves reviewing investments, savings, insurance, and other elements as they work toward their goals. However, not all financial professionals are created equal. Here's what to look for before hiring one.

Skills and training—Competence is key when selecting a professional. They must demonstrate knowledge about the financial markets, investment strategies, tax laws, insurance, and other relevant areas. They should also have the necessary qualifications, credentials, and certifications. This training and education indicate they have undergone thorough training and passed the examinations needed to offer guidance in these areas.

Experience—Secondly, it's essential to consider the financial professional’s experience. Questions to ask while interviewing them include:

· How long have you been providing financial guidance?

· What types of clients have you served?

· Do you specialize in certain areas?

Understanding their experience level and areas of knowledge can help determine if they're the appropriate professional for your unique needs.

Planning for retirement often raises one crucial question: How much should one withdraw each year during retirement? Managing withdrawals may significantly impact the longevity of your retirement funds. Managing withdrawals aims to strike an equal balance between enjoying your retirement and ensuring your savings last throughout life.

Different factors influence this withdrawal calculation, including the size of your retirement portfolio, other income sources, lifestyle demand, life expectancy, and market conditions. Consequently, it would be wrong to assume that a 'one-size-fits-all' policy works for everyone.

This article aims to explain what to consider when planning retirement savings withdrawals.

The 4% Rule

A classic rule often followed is the "4% Rule," which suggests withdrawing 4% of one's retirement savings in the first year of retirement. In subsequent years, the withdrawal should adjust according to inflation. For instance, if you have a retirement corpus of $1 million, you withdraw $40,000 in the first year. This strategy assumes that your portfolio comprises a balanced mix of stocks, bonds, and other retirement savings and insurance vehicles, anticipating they last for at least 30 years.

A critical aspect of retirement planning is understanding the rules and requirements surrounding Required Minimum Distributions (RMDs) from retirement savings accounts. An RMD is a mandatory minimum amount that retirement account owners must withdraw from their accounts annually.

This article overviews RMD requirements and how to circumvent IRS penalties by not exercising them.

What accounts have RMDs?

RMDs are the minimum amount the IRS requires to be withdrawn from a tax-deferred retirement plan. The amount withdrawn is taxed as ordinary income at the owner's tax rate. RMDs apply to:

· Traditional IRAs

· SEP IRAs

· SIMPLE IRAs

· Rollover IRAs

· 401(k) and 403(b) plans

· Most small business accounts

It's essential to note that Roth IRAs, Roth 401(k)s, and Roth 403(b)s do not have RMDs.

Changing RMD ages

In the past, RMDs commenced at 70 1/2 unless one solely owned a 5% or more interest in the business sponsoring the retirement plan; then, it started at a later retirement date. The rule changed following the enactment of the Secure Act in 2019, which pushed the RMD beginning age from 70½ to 72.

Planning for retirement can be overwhelming, but it becomes much easier if you start early. If you plan to retire next year, there are specific things you must consider and implement now as you prepare for an independent retirement. Here are seven tips to help you prepare to retire.

#1- Pay off debt.

Before you retire, it's essential to eliminate as much debt as possible. Whether credit card debt, mortgage loans, or student debt, any outstanding financial obligations may affect your retirement savings. Eliminating these debts can help you manage your monthly expenses and have more cash for your golden years.

#2- Estimate your retirement income needs.

The first step in retirement planning is estimating how much money you need to retire. A common rule of thumb suggests that you may need about 75—80% of your pre-retirement income to maintain a similar lifestyle throughout retirement.

The amount varies depending on health, lifestyle, debts, travel plans, etc. A financial or insurance professional can help determine if this percentage is appropriate for you.

#3- Fully fund an emergency fund.

An emergency fund is crucial to safeguard against unexpected financial emergencies that could derail your retirement plan. Your emergency fund should be large enough to cover six to twelve months of living expenses.

Financial planning, including tax planning, is vital to personal financial health and wealth accumulation. Financial professionals often specialize in tax planning, determining one's wealth growth trajectory and overall tax liability. They frequently collaborate with tax professionals to provide proactive tax-planning services for their clients.

This focus on tax planning and other specialties can help clients work toward financial independence, knowing that their financial affairs—and taxes—are in capable hands. Here are some reasons why discussing taxes and tax planning is essential.

Tax laws

Tax laws evolve continually, and staying updated with these changes can be overwhelming for individuals unfamiliar with the intricacies of tax legislation. Financial professionals specializing in tax planning stay abreast of new tax laws, rulings, and court decisions about taxes. They interpret how these changes may affect their clients' financial circumstances regarding investments and strategies and identify the appropriate investments to help manage tax liabilities.

Personal and business tax planning

Financial professionals specializing in tax planning understand all tax-related issues. They can assist clients in income tax planning, estate tax planning, retirement tax planning, business tax planning, and other related areas. Financial advisors who are well-versed in tax planning can also structure investments, financial activities, and new business opportunities to help manage tax liability.

Numerous factors can influence retirement savings and the longevity of one’s retirement nest egg. Among them are longevity, liquidity, inflation, mortality (the stock) market, and taxes (LLIMMT). Each plays a crucial role in shaping an individual's retirement outlook.

This article covers LLIMMT and a comprehensive understanding of how each may impact planning for retirement.

Longevity— Longevity pertains to life expectancy or the length of time that a retiree expects to live beyond the average retirement age. With advancements in healthcare, the average lifespan has been gradually increasing, which means that retirees need more money to cover their expenses for a more extended period.

If retirees underestimate their longevity, they might exhaust their retirement savings sooner than anticipated, leading to financial hardship in their golden years.

Liquidity—Another critical factor is liquidity, which refers to the ease with which an asset can convert to cash without significantly affecting its value. Retirees must have enough liquid assets to cover unexpected costs like medical expenses or home repairs without selling off long-term investments at a loss. The risk of not having enough liquidity may result in retirees depleting retirement savings more quickly than expected.

The estate tax, also called the death tax, is a tax on transferring assets from a deceased person to their heirs or beneficiaries. One significant component of our current estate tax law is the sunset provision, which implies that specific policies within the law have a set expiration date after which they cease to exist. The impending estate tax sunset on December 31st. 2025, may significantly impact high-net-worth individuals transferring their estate to heirs and those who inherit these assets.

In this article, we review the current estate tax exemption, the step-up basis rule, and how proactive estate planning and the implementation of strategies may help lighten the tax burden on heirs.

Today’s Federal estate tax exemption

Currently, the estate tax exemption limit in the U.S. is $13.61 million per benefactor, implying that any estate valued less than this amount will most likely not be subjected to federal estate tax. Nonetheless, these parameters are subject to change following the sunset provision, which will expire at the end of 2025.

As the sunset date approaches, the federal estate tax exemption could be decreased by nearly half. This reduction would mean more estates fall into the taxable category, substantially impacting heirs. Investors who initially thought their estate or heirs would not be liable to pay the estate tax due to the value under the exemption threshold may need to reevaluate their estate plan due to the lower limit.

As the end of the year approaches, it's time to start thinking about what comes next for your finances in the New Year. Reviewing your financial situation can help you evaluate your financial health and set the stage for working toward goals in the coming year. Here is an eight step end-of-year financial checklist to work through as you pursue being on top of your financial game in the New Year.

1. Review your budget.

The first step in your end-of-year review should be assessing your current budget. Did you stick to your planned budget throughout the year? If not, identify areas where you overspent or underspent, then make necessary adjustments for the coming year. For example, did you underspend on your retirement savings contributions? If so, adjust your contribution amount now.

It's essential to analyze your current debt situation during your budget review. Understanding how much you owe and what interest rates you're paying can help you quickly prioritize which high-interest loans to pay off first and then next as you decrease your debts.

2. Update your goals.

Your goals need periodic reviews and updates. These could include paying off a particular debt, saving more for retirement, or building an emergency fund. Reflect on your progress towards these goals and revise them as necessary.

One of the major concerns people have when planning their retirement is how to protect their retirement savings from unforeseen medical expenses. Healthcare costs have steadily risen, but adequate planning can help maintain these costs in retirement. This article outlines four ways to help protect one's retirement savings from unexpected healthcare costs in retirement.

1. Maintain regular health checkups and screenings.

Additionally, monitor your health and go for regular checkups. Regular checkups can help detect any health issue early, reducing potential medical costs. A healthier lifestyle can also decrease your likelihood of developing chronic illnesses, which can be costly to manage in the long run.

2. Establish a healthcare emergency fund.

Another approach to covering unexpected healthcare costs is opening and contributing to an emergency fund savings account. This strategy creates a buffer to cover unexpected medical costs without dipping into retirement savings. Continue to save so that you have enough to cover the policy's yearly out-of-pocket deductible amount.

3. Purchase a comprehensive health insurance plan.