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If there's one thing you can say with certainty, it's that few things in life are guaranteed. And in the past several years, that uncertainty has only grown, with a global pandemic and a volatile economy added to the mix.
That said, in the face of all that uncertainty, Americans still aren't prepared for retirement. In fact, a 2021 Federal Reserve report found about 25% of Americans have no retirement savings at all. If you're ready to start thinking – and acting – seriously about retirement, there are several things you can do now to start securing your financial future.
Convert a traditional IRA or 401K to a Roth
If you currently have a traditional IRA or a 401K, converting this account into a Roth can help you save more in retirement. Unlike a traditional IRA or 401K, you won't pay taxes on withdrawals made from a Roth. This is because contributions to a Roth are made post-taxes, as opposed to pre-tax contributions made to a traditional IRA or 401K.
According to U.S. News, it's a good idea to convert your traditional retirement account to a Roth when taxes are low, your income is reduced, you have money to pay the taxes that become due and you don't want to leave heirs a big tax bill. The same article states that, because of historically low taxes, now is the best time in history to convert your traditional account to a Roth.
If you're ready to convert to a Roth and experience a tax-free retirement, you'll want to talk to your retirement plan administrator to get started.
Protect your spouse from the Social Security income death reduction
Like many Americans, you might be counting on Social Security to take care of you – and your spouse – in your golden years. And while Social Security payments are likely lower than you'll actually need to support your current lifestyle, that's really only part of the problem.
Retired married couples usually receive a Social Security benefit for each person. After reaching full retirement age, each has the option to receive an individual benefit based on his or her personal work record; or, a spouse who did not qualify for Social Security on a personal work record can receive a spousal benefit.
When one of the two dies, one of those Social Security benefits disappears and there is a corresponding decrease in the combined household benefit amount they received as a couple. In other words, the widowed spouse finds her or himself facing a significant decline in household income.
The surviving spouse usually has the option to continue the larger of the two benefits. According to information from the National Caregivers Library, "A surviving spouse may be able to choose to receive spouse benefits or to receive benefits based on his or her own work record, and should look into both to decide which will provide the highest level of benefits."
A study by the Social Security Administration found that for women, the loss of income after the death of a spouse (including the loss of Social Security benefits) was "an important risk factor for transition into poverty."
The amount of the household benefit reduction can vary because the calculations for Social Security benefits are complex. The decline will be at least 33% and could be as much as 50%.
Understand and manage RMDs
Even if you've got your retirement savings in line, you may not have considered a few other factors – like how you'll handle required minimum distributions (RMD). In a nutshell, retirement savers who hit age 72 must start withdrawing funds from their retirement accounts. And because these retirement accounts are tax-advantaged, those withdrawals can hit you with a tax burden if you aren't prepared.
That said, you can manage your RMD tax bill if you take a more strategic approach. According to an article for Kiplinger, RMDs apply to traditional IRAs, SIMPLE IRAs, SEP IRAs or retirement plans like 401(k)s and 403(b)s. As mentioned above, Roth IRAs do not have RMDs because contributions to a Roth are made post-tax.
One way to lessen your tax burden, for example, is to make any charitable donations directly from your retirement account. According to Kiplinger, you can transfer up to $100,000 annually directly from your retirement account to a qualified charity and avoid paying taxes on the donation.
Take advantage of expert advice
While everyone wants to experience a comfortable and financially secure retirement, not everyone is a financial professional. That said, you can take advantage of expert advice and get the guidance you need to make strategic retirement decisions now – if you know where to look. B.O.S.S. Retirement Solutions provides customized, strategic retirement planning for people of all ages and income levels.
To learn exactly how much money you could save in taxes when you retire, schedule a free, customized Retirement Tax-Savings Analysis with a fiduciary who specializes in retirement tax savings, click here or just give B.O.S.S. a call at 801-216-3683.
Ryan Thacker and Tyson Thacker are the Founders of B.O.S.S. Retirement Solutions with six offices throughout greater Salt Lake City. They are three-time winners of Utah's Best of State Award.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency.