Retirement Tax Planning in Buffalo Grove, IL

tax planning for retirement

Taxes are a ubiquitous part of financial planning, and this is especially true in retirement. Proper asset location and having a sound distribution plan for your retirement are essentials of tax planning and can save you tens of thousands of dollars over the years. Lowering your tax bill will require proactive planning, and can be greatly helped with the assistance of a CFP® who specializes in tax planning.

In this article, we will discuss the essentials of tax planning for retirement, as well as the importance of year-end tax planning, and how working with a CFP® experienced in tax planning strategies may help. 


Make sure your 2022 taxes are up to par and get a head start on 2023 by talking with one of our professionals today


Tax planning essentials for retirement

Most retirees will only rely on a few sources of income once they retire. Having this knowledge in advance allows you to plan proactively and accordingly, so you don’t overpay what you need to in taxes. Relocating, reallocating retirement accounts, and structuring your distributions efficiently are just a few ways to minimize your tax liability in retirement. Here are a few tax-essential strategies that every pre-retiree and current retiree should consider:

  • Relocating: Relocating to a more tax-friendly state is a great option for anyone looking to save on taxes in retirement. There are eight states with no income tax at all, and all states are not allowed to tax residents on their retirement benefits earned in another state. For example, if you earned a pension in a state with higher taxes, like New York, and relocated to a state with no income tax, such as Florida, you would avoid state income tax. 
  • Strategize Social Security: Delaying Social Security at your full retirement age, if it is unneeded, is a good way to defer taxes; you earn additional credits that will increase your benefit while deferring any taxes on the benefits. However, timing when to begin your Social Security benefits depends greatly on your overall plan and should be considered carefully in advance. 
  • Reallocate your accounts: Utilizing a Roth conversion, or backdoor Roth, is a fantastic way to reduce your taxes in retirement, particularly if you anticipate that you will be in a higher tax bracket in retirement. Schedule a tax planning meeting with your advisor to learn how to begin the Roth conversion process.
  • Structure your distributions: Withdrawals from a Roth are tax-free in retirement, while distributions from a traditional IRA or 401(k) are not. The total amount that Social Security benefits will be taxed is either 50% or 85%; understand the tax implications of your accounts, and structure how you will take your distributions accordingly. 

Coordinate with your CFP® or Tax Planning Specialist

Taxes can be tricky, and they are one of the most complex and difficult parts of financial planning. Luckily, there are those who specialize in tax planning, and their experience and CFP® certification adequately prepare them to handle even the most complex tax situations. 

certified financial plannerWorking with a CERTIFIED FINANCIAL PLANNER™ will help you take advantage of all the tax deductions and tax planning strategies at your disposal that you otherwise may not have considered. From structuring your retirement plan contributions, reminding you of catch-up contributions after age 50, and maximizing your charitable contributions, working with a CFP® will help you develop the most optimal tax strategy for your unique situation. 

It’s important to have annual or semi-annual meetings with your financial advisor to ensure that you’re abiding by the plan that you developed. CFP®s offer far more than just tax planning too; they can help you budget more effectively, plan an optimal retirement income strategy, get out of debt, and manage your investments according to your risk profile. 

Don’t underestimate year-end tax planning

While you may benefit more from year-round tax planning, especially if you itemize your deductions, most individuals tend to wait until the last minute. 

End-of-the-year tax strategies may include both contributing or withdrawing from a retirement account to take advantage of tax-free withdrawals, beginning the Roth conversion process, or triggering capital gains if you qualify for a 0% tax rate.

tax planning, end of financial year

Year-end tax planning should help you prepare to lower the tax burden of the upcoming year while still in the current year; the best time to start planning is now.

Furthermore, reviewing your previous year’s tax return and comparing it to the current year is an excellent analytical practice that can help you determine what your next tax bracket will most likely be.  

Bottom line

Taxes are one of the most important parts of financial planning. They can also be a daunting task to take on alone; structuring your distributions in retirement incorrectly and not taking advantage of the plentiful deductions and strategies will cost you substantially more throughout your lifetime. 

Consulting with your CFP® is a great way to ensure that all of your questions are answered, and concerns are put to rest. Meeting face-to-face is a straightforward way to get the answers and solutions you need to improve your tax situation. Schedule a call with us today to see how we can help. 

SGL Are You Ready to Retire