When you are planning or investing in your retirement savings, taxes are going to be high on your mind. This is also the case if you are a company looking to provide a retirement savings account for your employees.
There are a number of ways to invest what you want so that you get it when you want, without paying tax penalties now, or later. Learn more by looking at these retirement savings account options, and what their tax implications are.
IRA and 401 (K) Distribution Taxes
Traditional IRA accounts can include 401 (K), 403 (b), and 457 accounts that you will want to use as income later in life.
Distribution amounts are taxable unless you have a Roth IRA. For 401 (K) and IRA withdrawals, there are ways to minimize the amount of taxes you will pay.
Withdrawing early is the number one way to pay taxes on your 401 (K). If you withdraw before the age of 59.5 years of age, you will pay a 10 percent early withdrawal penalty, and income tax on the amount.
If you are no longer working at the job that was investing into your 401 (K), you can withdraw from it before 55 years of age without a penalty.
Another way to avoid penalties and taxes is to withdraw for a specific function, such as a home, medical costs, or college tuition.
Additional ways to withdraw from your IRA retirement savings accounts include rolling over the 401 (K) without tax withholding. Y
ou also want to reduce the number of distributions that you are considering to one withdrawal annually.
Donating your IRA distribution to a non-profit organization can also help you to reduce taxes or enjoy tax benefits.
Companies looking to offer retirement savings accounts to their employees can investigate a number of options for them that will help them get the best plan.
Use Insurance to Pay for or Protect From Taxes
Insurance is one way that many Americans plan for taxes or see lower taxes in retirement.
One way that is accomplished is through life insurance. This can be managed in a few ways. A whole life insurance policy will pay dividends in many cases.
These are to repay you for premiums that were overpaid during the year.
These dividends can function like a cash reserve for an expense such as a tax bill.
Be careful with these before tax season, as they may be taxable if they are in excess of your initial policy amount.
Life insurance is also used as an estate planning tool for retirement savings accounts.
This can not only serve as a tax-free income if you withdraw from it, but it can also be tax-free for your beneficiaries.
A life insurance policy may also help you to avoid a large tax bill.
Manage Your Estate Taxes
You can manage your estate taxes before they arrive by transferring wealth or funds early.
Transferring income to your spouse can help you to avoid taxes. It also helps you to avoid estate taxes if they apply to you.
Not every state has an estate tax, but the federal government does.
An inheritance over the amount of $11.7 million for an individual will have an estate tax applied that will be anywhere from 18 to 40 percent.
Do Your Research
If you are looking for a way to save taxes on retirement, do your research on all options before you make a final decision.
Companies that offer retirement savings accounts may be the most ideal option for you when planning your retirement.