Is your financial future secure? Is your current income protected as well as your retirement income? According to a recent Bankrate.com survey, 55% of Americans say they are behind on saving for their retirement. If you DO have a retirement plan in place, are you on track to fund your post-retirement lifestyle and do you know how it will be taxed? For most people, these questions can seem overwhelming, but that's why we use the tools and strategies of the wealthy to help our clients keep their hard-earned money. Let's break down the types of retirement income: taxed, tax-deferred, and tax-fee...

Types of Retirement Income

If you don't know which type of retirement plan you have, whether through your employer, life insurance, or other sources, make sure you educate yourself on which type of retirement works best for you and your family and plan accordingly. We are going to break down the different types of retirement income below...

1. Taxed Now - These retirement income sources are subject to taxation by the government and usually taxed annually. This can include bank funds, mutual funds, and stocks. The amount of retirement income that is taxed depends on a variety of factors, including the individual's tax bracket, the type and amount of retirement income they receive, and any deductions or credits they may be eligible for. This type of retirement fund may impact Social Security taxes and is included in your estate. The benefits of this type of retirement income is that there are no contribution limits and no required minimum distributions (RMDs).
2. Tax-Deferred - Tax-deferred retirement income refers to income that is earned or accumulated in a retirement account and is not subject to immediate taxation. This can include 401Ks, Traditional IRAs, 403b, and annuities. Instead of paying taxes on this income upfront, taxes are deferred until the individual withdraws the funds from the retirement account, typically during retirement. At that time, the income is taxed at the individual's current tax rate, which may be lower than their tax rate during their working years. These funds are subject to income tax, RMDs at age 72, contribution limits, and potential 85% Social Security taxation.
3. Tax-Free - Tax-free retirement income refers to income that is earned or accumulated in a retirement account and is not subject to taxation at any point, including when the funds are withdrawn during retirement. Life insurance is a great way to secure tax-free retirement. There are no contribution limits, no RMDs, no excise tax, and it does not affect Social Security taxation. This can provide a significant tax advantage for individuals who expect to be in a higher tax bracket during retirement or who want to minimize their tax liability in retirement.