YOUR TAX-FREE RETIREMENT RESOURCE
You Worked Hard to Build Your Retirement. Now Learn How to Keep More of It.
Your retirement accounts may be worth more than ever — but how much of that money will actually be yours after taxes? Explore strategies designed to help you understand taxes in retirement, create more tax-efficient income, and make informed decisions about your financial future.
What You’ll Discover
The Retirement Tax Problem
Why accumulating money in tax-deferred accounts may create a larger tax obligation later.
Creating Tax-Free Income
Learn about strategies that may help create more tax-efficient sources of retirement income.
Keeping More of What You Built
Understand how planning before retirement may give you more control over future taxes.
TAXABLE
Examples: bank accounts, brokerage accounts and other taxable investments. Taxes may be owed on interest, dividends and realized capital gains.
1 — YOU CONTRIBUTE
Contributions to certain traditional retirement accounts may reduce taxable income during your working years.
Where Will Your Retirement Income Be Taxed?
Which Bucket Holds Most of Your Retirement Money?
TAX-DEFERRED DOESN’T MEAN TAX-FREE
The Question Isn't Just “How Much Have I Saved?”
It's “How Much of It Will I Actually Get to Keep?”
Retirement assets are often viewed through three different tax buckets, each with its own rules for how income may be taxed.
Many Americans spend decades accumulating retirement assets without considering how those dollars will eventually be taxed. Understanding the balance between taxable, tax-deferred and tax-free assets can be an important part of retirement income planning.
AND THEN THERE ARE REQUIRED MINIMUM DISTRIBUTIONS
At certain ages, federal tax rules generally require owners of traditional retirement accounts to begin taking minimum distributions. These withdrawals can create taxable income whether or not the money is needed for living expenses.
Planning before those distributions begin may provide more options than waiting until they are required.
Traditional retirement accounts can provide valuable tax benefits while you're working. But in many cases, the taxes haven't disappeared — they've simply been postponed.
Your retirement account balance tells you how much you've accumulated. It doesn't necessarily tell you how much you'll have available to spend after taxes.
TAX-DEFERRED
Examples: Traditional 401(k), 403(b), 457, TSP and Traditional IRA accounts. Contributions and growth may receive tax advantages today, while distributions are generally taxable as ordinary income.
2 — YOUR MONEY GROWS TAX-DEFERRED
Taxes on investment growth are generally deferred while the money remains inside the account.
TAX-FREE
Examples may include qualified Roth distributions and certain properly structured strategies. These assets may provide income with favorable tax treatment when applicable requirements are met.
3 — YOU WITHDRAW
Distributions from traditional tax-deferred retirement accounts are generally taxed as ordinary income.
WHAT IF YOU COULD CHOOSE WHEN TO PAY THE TAX?
With tax-deferred retirement accounts, taxes generally become due when money is distributed. But retirement tax planning doesn't always have to begin when you need the money.
The years between your final paycheck and required distributions can create an important tax-planning window.
WORKING YEARS
Income may be higher while you're earning a paycheck and contributing to retirement accounts.
THE RETIREMENT WINDOW
After retiring — but before Social Security, pensions, required distributions, or other income fully begin — some people may experience lower-income years that can create planning opportunities.
LATER RETIREMENT
Social Security, pensions, investment income and required distributions can combine to create taxable income later in retirement.
ONE STRATEGY WORTH UNDERSTANDING: ROTH CONVERSIONS
A Roth conversion moves money from an eligible tax-deferred retirement account into a Roth account. The amount converted is generally included in taxable income for that year, but qualified Roth distributions in the future can be tax-free.
The goal isn't simply to pay less tax this year.
The bigger question is how today's decision may affect taxes throughout retirement.
WHEN?
Are there years when your taxable income may be lower?
HOW MUCH?
Would converting smaller amounts over several years make more sense than converting a large amount at once?
WHAT ELSE CHANGES?
Could additional taxable income affect Medicare premiums, Social Security taxation, tax brackets, deductions or other parts of your financial picture?
A Roth conversion is not automatically right for everyone. The amount, timing and tax consequences should be evaluated as part of the overall retirement plan.
MEET JOHN & SUSAN
A SIMPLE EXAMPLE OF A RETIREMENT TAX-PLANNING WINDOW
Hypothetical example for educational purposes only. Individual circumstances and tax results will vary.
JOHN & SUSAN
• Both retire at age 62
• $800,000 in traditional tax-deferred retirement accounts
• Social Security planned at age 67
• Most of their retirement savings are currently tax-deferred
AGE 62 — RETIRE
Their paychecks stop.
THEIR RETIREMENT TAX-PLANNING WINDOW
Those five years may give John and Susan an opportunity to evaluate retirement tax strategies before additional sources of taxable income begin.
AGES 62–67 — PLANNING WINDOW
Employment income has ended, while their planned Social Security benefits have not yet begun.
AGE 67 — SOCIAL SECURITY
Their planned Social Security benefits begin, adding another source of retirement income.
LATER — REQUIRED DISTRIBUTIONS
Required minimum distributions from traditional retirement accounts may eventually add taxable income.
WHAT COULD JOHN & SUSAN DO DURING THAT FIVE-YEAR WINDOW?
John and Susan don't automatically need to make a change. But the years between retirement and the start of additional retirement income may give them an opportunity to evaluate whether moving some money from their tax-deferred bucket could improve their overall retirement tax picture.
LEAVE EVERYTHING TAX-DEFERRED
• Keep the $800,000 in their traditional retirement accounts
• Continue tax-deferred growth
• Pay ordinary income taxes as money is withdrawn
• Required minimum distributions may eventually increase taxable income
• Future tax rates are unknown
EXPLORE MOVING SOME MONEY TO TAX-FREE
• Evaluate converting portions over several years
• Pay tax on amounts converted in the year of conversion
• Move converted assets into a Roth account
• Qualified Roth distributions can be tax-free
• Potentially reduce the amount remaining subject to future required minimum distributions
The question isn't simply, “Should they convert to a Roth?” The better question is, “How much might make sense, in which years, and at what tax cost?”
This hypothetical example is for educational purposes only and is not tax or investment advice. Roth conversions may increase taxable income and can affect tax brackets, Medicare premiums and other tax considerations.