A Financial Checklist for Tax-Smart Withdrawals
Putting it all together can feel overwhelming. Follow this simple checklist to get started on the right path.
First, take stock of your assets. Before you can make a plan, you need a clear picture of your finances. Make a list of all your accounts—IRAs, 401(k)s, Roth accounts, brokerage accounts, and bank accounts. Categorize each one as tax-deferred, tax-free, or taxable.
Second, estimate your annual expenses. Create a realistic budget for your retirement lifestyle. This will tell you how much income you will need to generate from your savings each year, which is the starting point for your withdrawal plan.
Third, review your tax situation. Look at a copy of your most recent tax return. Understand what your tax bracket is and identify your sources of fixed income. Use this information to calculate your provisional income and estimate how your Social Security benefits might be taxed.
Fourth, create a proactive withdrawal plan. Before the year begins, decide which accounts you will pull from and in what order. Your goal should be to withdraw just enough to meet your spending needs while staying within your target tax bracket and minimizing the tax on your Social Security benefits.
Finally, consult with a professional. The tax code is complex and your situation is unique. Before making any significant decisions like a large withdrawal or a Roth conversion, it is wise to speak with a qualified financial advisor or a tax professional. They can help you verify your strategy and avoid costly mistakes.
