4 Items to Consider When Facing Retirement

Something that many people look forward to is retirement. There are various things that one needs to consider and plan for when moving into this phase of life, some of which could have tax implications.

Here is a brief rundown of four tax and financial issues that you may find yourself dealing with when you retire:

Taking required minimum distributions from Retirement Accounts. You generally must start taking withdrawals from your IRA, SEP, SIMPLE and other retirement plan accounts when you reach age 72 (70½ before January 1, 2020). Roth IRAs do not require withdrawals until after the death of the owner.

You can always withdraw more than the minimum required amount. Generally, your withdrawals will be included in your taxable income except for any part that was previously taxed, or can be received tax-free such as a qualified distributions from Roth accounts or qualified charitable distributions.

Selling your principal residence. Many retirees want to downsize to smaller homes. If you are one of them and you have a gain from the sale of your principal residence, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return, you may be able to exclude up to $500,000.

To claim the exclusion, you must meet certain requirements. During a five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.

If you are thinking of selling your home, make sure you’ve identified all home improvements made that can be included in its tax cost basis. This can reduce any potential gain to be recognized.

Engaging in new work activities. After retirement, many people continue to work as consultants or may start new business ventures. Here are some tax-related questions to ask:

  • Should the business be a sole proprietorship, S corporation, C corporation, partnership, or limited liability company?
  • Are you familiar with how to elect to amortize start-up expenditures and make payroll tax deposits?
  • What expenses can you deduct, and can you claim home office deductions?
  • How should you finance the business?
  • Should I obtain a separate Federal EIN in lieu of my SSN.

Taking Social Security benefits. If you continue to work, it may have an impact on your available Social Security benefits. If you retire before reaching full Social Security retirement age (65 years of age for people born before 1938, rising to 67 years of age for people born after 1959) and the sum of your wages plus self-employment income is over the Social Security annual exempt amount ($18,960 for 2021), you must give back $1 of Social Security benefits for each $2 of excess earnings.

If you reach full retirement age this year, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($50,520 in 2021) until the month you reach full retirement age. Then, your earnings will no longer affect the amount of your monthly benefits, no matter how much you earn.

Speaking of Social Security, you may have to pay federal (and possibly state) tax on your benefits. Depending on how much income you have from other sources, you may have to report up to 85% of your benefits received as taxable income on your tax return and pay the resulting income taxes.

Many decisions
As you can see, tax planning is still important after you retire. Contact your Rudler, PSC advisor at 859-331-1717 to help maximize the tax breaks you are entitled to so you can keep more of your hard-earned money.


RUDLER, PSC CPAs and Business Advisors

This week's Rudler Review is presented by Kendra Anderson, Staff Accountant and S. Gregor Lamping, CPA.

If you would like to discuss your particular situation, contact Kendra or Greg at 859-331-1717.


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