If you have started to further develop your retirement plans, you may have noticed that your taxes in retirement can be a lot more complicated than your working taxes. Social Security checks are not always taxed, which will depend on your income. Tax rates will depend on additional state taxes, as well as any other investments you might have.
What Taxes Should I Look Out for in My Retirement Plan?
- Combined income taxes. How your Social Security benefit is taxed will depend on your combined income. This is also known as your adjusted gross income, plus any non-taxable interest and half of your Social Security benefit.
- If you are single with a combined income below $25,000, your benefit won’t be taxed, but as that income amount increases, your taxable benefits will raise.
- If you are joint filing with a combined income between $32,000 and $44,000, half of your benefits will be taxable, and this goes up to 85% if your income is above $44,000.
- State taxes. The state of Colorado taxes Social Security benefits to some extent, depending on your retirement circumstances. Other states don’t tax income, so if you plan on moving to a new state during retirement you should check the state’s tax laws.
- Required minimum distributions. By the age of 70, you are required to begin withdrawing money from most retirement accounts. There are required minimum distributions that are taxed at your regular income tax rates. Depending on how much you have saved and what type of plans you have, it might make sense to take a different approach earlier on in order to avoid a huge increase in your taxes.
- Home sales. Selling your home can also result in a new tax bill. If you have lived in your home two out of the five years prior to selling it, you could exempt up to $250,000 of home sale profit. You could also owe a “depreciation recapture tax” if you took out any home office deductions.
- Estate or inheritance taxes. Colorado does not currently collect an estate tax on the state level, nor does it collect a state inheritance tax. However, if you plan on moving to another state during your retirement, research your new state’s additional taxes and how they will affect your retirement funds
If you have any more questions about your Colorado retirement or estate plans, you should contact an estate planning attorney who can give you more information. Contact the Law Office of Skipton Reynolds, LLC today.