Taxes in Retirement in Florida 2020
Taxes in Retirement in Florida 2020
Taxes don’t disappear when you retire.
Having a plan for dealing with taxes during retirement can help you maintain your financial well-being.
Many upcoming retirees aren’t quite sure how taxes in retirement are calculated.
It’s not all that different than the way they are calculated while you are working.
Much like when you are working, you need to have an estimate of the amount of taxes you are required to pay so you know what amount to have withheld from pensions, Social Security, or other types of income.
Your taxes in in retirement may be a lot more complicated than taxes while you’re working.
Social Security checks may or may not be taxed, depending on your income.
You’ll pay federal income taxes on most retirement plan withdrawals, but additional state taxes depend on where you live.
Tax rates on investments can vary as well.
Retirement Taxes in Florida
In terms of taxes, one of the key benefits of moving to Florida is what isn’t there – namely, state income taxes.
Alongside just six other states in the U.S., Florida does not impose income tax.
The law is written in the state constitution, making it highly unlikely to change, and even better, that constitution prohibits municipalities and counties from levying personal income tax too.
Similarly, via its 2001 Economic Growth and Tax Relief Reconciliation Act, the Sunshine State does not impose a state death tax or a state-level estate tax.
The tax advantages of living in Florida don’t end at the lack of state income tax; many perks come in the form of personal tax breaks.
If you own a home in Florida, the Save Our Home Act provides a homestead exemption, protecting the first $50,000 of your home’s taxable value from taxation (except for school district taxes, which only have a $25,000 exemption – but it’s for a good cause).
What is My Retirement Tax Rate
In retirement, you may have to estimate your tax bracket.
Overestimating and underestimating can both cause problems, so it might be a good idea to seek help from a financial advisor or accountant when estimating.
It’s important to know that even if you know your tax bracket, you might not know how much you will ultimately end up paying in taxes.
Estimating your bracket should at least give you some idea.
First, add up your retirement income and determine at what age you will start receiving distributions from your various retirement savings vehicles.
Remember that not all your retirement sources will be taxed the same way.
For example, a portion of your retirement income might be taxed at a lower rate until you start receiving higher distributions, or some of your income might not be taxable at all.
It’s also crucial to know your tax bracket for estimating how much you’ll pay in capital gains tax on the sale of any investments subject to the tax.
Do you have to pay income tax on your Social Security benefit?
If Social Security is your only source of income, you will likely pay no income tax.
But a portion of your benefit may be taxed by the Federal government if your total income is above a certain amount, starting at $25,000 a year.
Also, if you’re under 66 and have more than $15,480 in earned income, your benefit will be “reduced.”
In addition, there are 15 states that, depending on your income, may levy state income tax on your Social Security benefit.
What is a Tax Window in Retirement
What happens for retirees, often, is that all these income sources in retirement can turn on at once.
And if you’re not prepared for the time between when you retire and age 70 — called the tax window — you can be hit hard and miss out on lowering your future tax bill.
At age 70 retirees will be required to take their required minimum distributions.
They will also be required to turn on Social Security if they haven’t already.
If combined assets are high enough, the required minimum distributions will cause 85% of Social Security to be taxed.
Plus, retirees are paying on the taxes from the distribution.
This is usually a big surprise tax bill that can be avoided if retirees take the right steps.
The tax window will allow the retiree to make some moves to lower their future tax bill, if a retiree is diversified with the three types of accounts — always taxable (IRA/401(k)), never taxable (Roth IRA/Roth 401(k)), and sometimes taxable (brokerage account).
During this tax window, retirees will likely have very low income and thus, be in a low tax bracket.
This is when its recommended taking assets from an always-taxable account and putting them in a never taxable account.
By paying taxes now, in a lower bracket, retirees can save money in the long run.
If Social Security is not on, this may be a good time to start spending money out of the always taxable accounts and save the never taxable accounts for after 70.
Retirement income that is NOT taxed
By now you may be asking if every dime you take in during retirement is taxed.
The answer is, thankfully, “no.”
Not every source of cash flow from investments is counted as taxable income.
For example, if you own a bank CD that matures in the amount of $10,000, that $10,000 is not extra taxable income you need to report on your tax return, only the interest it earned must be reported.
Taxes in Retirement 2020
Because your sources of income will probably be more diverse than when you were working, and each source of income comes with a distinct set of tax rules, taxes in retirement may be a bit more complicated than when you were working.
Although this is unfortunate, knowledge of these nuances and the optimal timing of withdrawals are critical.
With a little education and some strategic planning, you can make the best of it and minimize your taxes and your hassles while you enjoy your retirement lifestyle.
Of course, you want to maximize your income while paying the lowest possible amount of taxes on that income.
Retirement Planning Advisor Florida
If you have a lot of different sources of retirement income, tax planning can get very complicated quickly.
Taxes are fairly simple when you’re working.
In retirement, however, you might have income from myriad sources, and that interplay can make taxes more complicated.
For example, pulling just a bit more from a tax-deferred account in a given year could boot you into a higher long-term capital gains rate or cause a bigger portion of Social Security benefits to be taxed.
You can’t just look at, I’m taking $5,000 from here, and it’s 12 percent [tax rate].
Work with an advisor to walk that balancing act of how much to draw from which sources, maximizing income and minimizing your tax bill.
Mintco Financial Retirement Planning Advisors
With the right plan, we bring your vision into sharper focus, so you can enjoy the lifestyle you want and deserve.
Keep in mind that the planning doesn’t stop when your paychecks do.
It’s a continuous process that goes on all the way through retirement.
We analyze your current situation to help you remain on track to pursue all you’ve envisioned from retirement, identifying sources of income and expenses to create and adhere to a tax-efficient withdrawal strategy.
We make the most of your assets and income streams by creating a steady and sustainable income strategy, consolidating accounts, if necessary, to effectively recreate the predictable cash flow of a steady paycheck and ensuring contributions to your philanthropic interests.
Your needs and wants will change during this time.
We reevaluate your plan so you can maintain a clear picture of the kind of lifestyle you desire, reassessing your short- and long-term goals, plus your risk tolerance in retirement.
We also make sure you have the proper up-to-date documentation to help ensure your legacy is protected and wishes are respected.
Contact us Today at 813-964-7100 or 716-565-1300