To avoid a financial crunch later in life, read up on taxes in retirement and work with an accountant or financial advisor to see what strategies you can employ to keep your IRS burden to a minimum. You may want to move some of your savings from a traditional retirement plan to a Roth account, for example, to get yourself into a lower tax bracket as a senior. First of all, retirement plan withdrawals count as taxable income if you don’t have a Roth savings plan. Also, Social Security benefits can be taxable, depending on your total income. And then there are pension payments — if you’re fortunate enough to have some to look forward to, you should expect to pay taxes on them as well.
A lot of people figure their taxes will go down in retirement, or that they won’t need to pay the IRS any money at all. But that’s far from true.
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