Protecting Your Retirement and Legacy: Avoiding Excessive Taxes

Many retirees worry about outliving their savings, with 63% of Americans more fearful of running out of money than dying. This concern often overshadows the significant issue of overpaying taxes in retirement. Many taxes paid during retirement could be reduced or avoided with proper strategies.

Three key reasons why you might be overpaying taxes:

1. Sunset of the Tax Cuts and Jobs Act (TCJA): When TCJA provisions expire at the end of 2025, tax rates will increase. Engaging in Roth conversions now could allow you to pay taxes at current lower rates, benefiting your overall tax situation in retirement and aiding in legacy planning.
2. Widow’s Penalty: The tax system’s structure can place newly widowed retirees, particularly women, in higher tax brackets despite lower incomes. Required minimum distributions (RMDs) on inherited IRAs can push the surviving spouse into a higher tax bracket. Roth conversions can help mitigate this issue by paying taxes upfront.
3. Taxable Inheritances for Children: The SECURE Act of 2019 requires non-spouse beneficiaries to distribute inherited IRAs within 10 years, potentially resulting in a large tax bill. Roth IRAs, on the other hand, do not burden heirs with additional taxes since taxes are paid upfront.

To protect your retirement and legacy from excessive taxation, consider strategies such as Roth conversions. This proactive approach can reduce the financial burden on your loved ones and ensure more of your savings are preserved.

Disclaimer: Investing involves risk and is not guaranteed. Seek professional tax advice for your situation.

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