Failing to Plan for Taxes Could Mean Planning to Fail in Retirement
If the bulk of your retirement savings is in a traditional IRA or 401(k) or other tax-deferred account, you’ve got a problem. The good news is, there are plenty of things you can do about it.


Think about all the money you have in your tax-deferred savings accounts (like IRAs) and in company-sponsored plans, such as 401(k)s and 403(b)s.
Now think about having a loan against them. That loan is the money you will owe the IRS when you start taking distributions from those accounts.
How much interest will you pay on that loan? In other words, what tax rate will you pay on the money you take out of your tax-deferred accounts in retirement? With proper planning, you can have a say in that number. If taxes are not part of your financial plan for retirement, then your plan is incomplete, and perhaps it’s time to interview a financial adviser who prioritizes tax planning.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Taxes will go up by law when the Tax Cuts and Jobs Act of 2017 expires after 2025. There’s a good possibility taxes will increase further because of the huge national debt we’ve accumulated. Therefore, you need to ask yourself these questions:
- Do you know your tax liability?
- Do you know how much the amount that you owe the IRS will grow in the near future?
- Do you know what the tax impact will be when your spouse inherits your tax-deferred accounts, or when your children inherit them?
If one spouse passes away and leaves those tax-deferred accounts to the surviving spouse, that surviving spouse becomes a single taxpayer, and their rates are significantly higher. And when children inherit a tax-deferred account, their tax burden can increase as well. Due to the SECURE Act, most beneficiaries are required to withdraw assets within 10 years following the death of the account holder, rather than over the rest of their lifetime. So, at the age at which most children inherit their parents’ money, they’re probably in the highest tax bracket of their lives.
On the plus side, when working with a tax-licensed financial adviser, you can create tax-free accounts for retirement, reduce your tax load overall and lessen the burden on your beneficiaries. Here are some effective ways of tailoring your retirement plan to tax considerations:
- Roth IRA. The best way to have tax-free income is to pay the taxes on retirement accounts before withdrawing the money. And the best way to do that is by contributing to a Roth during your working years. While your contributions to a Roth IRA are not tax-deductible as they are with a traditional IRA or an employer-sponsored 401(k) plan, distributions made after age 59½ are generally tax-free. The specter of higher taxes in the future compels many people to do Roth conversions — taking some money from a tax-deferred account and putting it into a Roth IRA. The maximum annual Roth contribution in 2021 and 2022 is $6,000, plus $1,000 if you turn 50 by the end of the tax year.
- Health Savings Account. HSA contributions are tax-deductible, gains in the account grow tax-free and withdrawals used to pay for qualified medical expenses are also tax-free. You can contribute $3,600 to an HSA in 2021 ($7,200 for family coverage). If you’re 55 or over, you can contribute an extra $1,000. For 2022 those limits rise to $3,650 and $7,300, respectively.
- Municipal bonds. These are issued by counties, cities and states to fund public projects. The interest you earn on municipal bonds generally is not subject to federal tax. And if the bond is issued in your state of residence, it may be tax-free at the state level.
- Gifting. A smart way to ensure your money stays in the family is to give it to your heirs while you’re alive. For 2021, the IRS allows individuals to give a maximum of $15,000 per person, per year in gifts, and in 2022 that number rises to $16,000. That money is tax-free for recipients.
- Charitable donations. This is another effective way to reduce one’s estate value and related taxable amount. The Qualified Charitable Distribution (QCD) rule allows traditional IRA owners of at least 70½ years of age to deduct their required minimum distributions on their tax returns if they give the money to a charity. Any traditional QCDs must be made directly to the charity and are capped at $100,000 annually per person.
Learning the tax rules and strategies ahead of retirement can make a significant difference in how much you owe the IRS, how much you keep and how much you enjoy your retirement.
Dan Dunkin contributed to this article.
Disclaimer
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.Networth Advisors LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Beth Andrews (www.networthadvisorsllc.com) is the founder of Networth Advisors, LLC. She has over 20 years of experience in the financial services industry as an Investment Adviser Representative and insurance professional and holds CPA and CERTIFIED FINANCIAL PLANNER™ designations. She is the author of “Networth for Retirement: Everyone Deserves a Confident, Independent Retirement” and has her own radio program called “The Networth Financial Hour Radio Show,” which airs on WPGP, WJAS and WPIT.
-
Fired Up By the Masters and RBC Heritage? See These Homes for Sale By Golf Courses
Five homes for sale near golf courses, for people who can't get enough of the tour.
By Alexandra Svokos
-
The Economic Impact of the US-China Trade War
The Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
By David Payne
-
Will My Children Inherit Too Much?
If you worry about how your children will handle an inheritance, you're not alone. Luckily, you have options — from lifetime gifting to trusts — that can help.
By Mallon FitzPatrick, CFP®, AEP®, CLU®
-
Charitable Giving Lessons From Netflix's 'Apple Cider Vinegar'
Charity fraud is rife, and a Netflix series provides a timely warning about donating money to a good cause without looking into its background.
By Peter J. Klein, CFA®, CAP®, CSRIC®, CRPS®
-
Four Takeaways From Filing Your Taxes to Boost Your Financial Future
Now that another tax season is in the rearview mirror for most of us, what lessons can you take from what you learned about your finances to plan for the future?
By Kate Winget
-
What Claims Adjusters Are Thinking vs What They're Saying
After a natural disaster, few of us are at our best, but here's what to keep in mind when you're interacting with your insurance company's claims adjuster.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS
-
Looking to Make a Job Change? How to Stand Out Like a Pro
To make a strong first impression in interviews or when networking, skip your job title and work history and use an opening gambit that highlights your talents.
By Anne deBruin Sample, CEO
-
First 100 Days: Trump's Impact on Your Finances
Here are some opportunities to consider regarding investing, interest rates and tax cuts as the financial landscape shifts under the new administration.
By Daniel Razvi, Esquire
-
What Would Happen if You Put Your Tax Refund in an IRA?
Not only could you get a tax break, but the compounding effect over 35 years could turn the average refund into nearly $14,000.
By Romi Savova
-
Children Can't Afford to Fly the Nest? Here's How to Help
The high cost of living means more adult children are staying at home. Here are four ways to help financially so they can eventually spread their wings.
By Kelli Kiemle, AIF®