After retiring, you still need to file taxes. However, it’s not as bad as when you were working. Florida does not have a state income tax, so you do not pay state taxes on your retirement. You do, however, pay taxes at the federal level. How long and how much depends on your additional income from other retirement accounts and part-time work you might take on.
France Law Firm can help you with federal taxes after you retire to ensure you pay the appropriate tax and reduce the chance of an audit.
Taxing Social Security Benefits
In some cases, your Social Security benefits may be taxable. If you earn over a certain amount from dividends, any income you make from working, whether for yourself or for someone else, pension income, interest income and other taxable income, you may have to file a tax return.
Generally, only 50 percent of your social security benefits are taxable. However, in some cases, up to 85 percent may be taxable.
Pensions and Tax-Deferred Investments
If you used an IRA, 401(k), or other tax-deferred retirement account or have a pension, you must pay taxes on that income as you withdraw the money. You pay federal income tax at your normal rate when you withdraw from pension annuities. Your employer withholds the taxes as you withdraw so that you will have some prepaid tax.
If you choose to withdraw the entire amount in a lump sum, you will have to pay the full amount of taxes due on the withdrawal amount since the tax on any withdrawal must be paid in the year you withdraw the funds.
You can withdraw money from your pension plan and transfer it directly to an IRA. In this case, the money remains tax-deferred until you withdraw it from the IRA. The asset protection attorneys at France Law can help you determine the best way to close a pension account and transfer the money.
As with Social Security benefits, Florida does not tax your pension benefits since the state does not have a state income tax. Even if you earned that pension in a state that taxes retirement benefits, that state could not tax it once you move to Florida or another state without an income tax.
IRA and 401(k) Taxes
Because IRAs are tax-deferred accounts, you won’t pay taxes on the income you earn and deposit into them. However, when you withdraw the money, you’ll have to pay taxes on the money. The benefit of an IRA is that your tax bracket may be higher while you are working and contributing to it. When you retire, if your income, including the withdrawals from the IRA, is lower, you might be in a lower tax bracket.
If your IRA is a Roth IRA, you don’t pay taxes on your earnings (deposits) as they accumulate as long as you follow the rules. However, the tax-free provisions only qualify if you have the account for at least five years.
401(k) accounts, 403(b) accounts and 457 salary reduction plans are also taxable when you withdraw the funds.
Because retirement account taxes can be complex, you should retain a tax attorney, especially if you run a business, to help you file taxes and protect assets.
Capital Gains, Dividends, and Investments
The Internal Revenue Service treats interest on investments, capital gains and dividend income as taxable income. Capital gains and dividends are taxed at the long-term capital gain rate. Assets are considered long-term if you’ve held them for more than a year.
These types of accounts give you more flexibility since you don’t have to wait until you are 59 ½ before withdrawing from them. You can decide which investments you can use now or hold for retirement.
If you have capital losses, you can use them to offset capital gains. A tax attorney at France Law can explain how to defer income to one tax year and will find other credits and tax deductions to help reduce your tax obligation.
Contact France Law
If you have retired and still have to file taxes – or if you are not sure whether you need to file taxes, contact the tax attorneys at France Law for a consultation.