Three Mistakes to Avoid in Retirement Tax Planning
Having a good tax plan can help keep you on top of what you need to do to maximize your savings for your golden years.


If you want to be fully prepared for retirement, having a plan in place for your taxes before you get there is vital. Tax planning is an essential part of your retirement, and making it a priority is one of the best things you can do to reduce your tax liability and maximize your ability to put away more money for your golden years.
Tax planning takes into account many things, including your overall income, retirement contributions, tax deductions and tax credits. Without a good plan, many people make mistakes, including these three.
1. Not maximizing contributions.
The average American isn’t saving nearly enough for retirement. Almost half don't have access to a retirement account through their employer, and according to Investment Company Institute Research, only 12% of households save for retirement on their own through an individual retirement account (IRA).

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Making contributions to your retirement account every month is a good start. The more you contribute, the better off you’ll be in retirement. The money you put away in a 401(k) will grow tax-deferred until you withdraw it in retirement.
In 2024, you can contribute up to $23,000 to your 401(k) and up to $7,000 to your IRA. Those who are age 50 and older can add an extra $7,500 to their 401(k) and an additional $1,000 to an IRA. Make sure to set aside some time each year to take a closer look at your contributions to ensure that you are making the most of your retirement savings opportunities.
2. Not diversifying your savings.
A lot of people invest in pre-tax accounts like traditional IRAs and 401(k)s. However, money in these types of accounts will be taxed once you decide to withdraw it in retirement. This means that if these are the only types of accounts you have, your retirement savings may not go as far as you think once taxes start coming out. One of the biggest retirement planning mistakes we see is not having appropriate tax diversification. This is just as important as having your investments diversified.
You may want to consider opening an account like a Roth IRA. While these accounts are taxed up front, they offer tax-free growth and tax-free withdrawals in retirement. You may even want to move some money from a traditional IRA or roll over a past employer's 401(k) account to a Roth IRA.
3. Not adjusting your withholdings.
Did you recently receive a large tax refund or did you owe a large tax bill when you last filed your taxes? If you have experienced either of these, you should consider adjusting your withholdings. Many people consider their tax refund as a bonus or extra money, but in reality, it’s neither. This is your money that Uncle Sam has been holding on to all year, interest-free.
You can adjust the amount taken from your paychecks whenever you want by submitting a W-4 form to your employer. Having a large tax refund or owing a large tax bill aren't the only reasons you should consider adjusting your withholdings. If you have recently experienced any major life-changing events like getting married, starting a business or having a baby, you should look at your withholdings and see they need tweaking.
If you are looking to boost your income in retirement, long-term tax planning is a great strategy. However, it’s often overlooked. Being proactive with your taxes can help you reduce tax liability and maximize your savings for retirement. Not only will this prevent tax-season stress, but keeping your finances at the top of your list all year will help your overall financial health.
So, where do you start? First, meet with a financial adviser. They can help you decide which accounts are right for you when it comes to saving and investing for your future.
Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results. Registration as an investment adviser does not imply a certain level of skill or training.
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Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
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