3 top retiree tax-planning mistakes

By sketching out a rough long-term plan of your retirement income and when each source kicks in (for example, when you plan to claim Social Security benefits), you can keep your distribution proportionate to your needs and not suddenly thrust yourself into a higher tax bracket with an unexpected distribution. You can get your estimated Social Security benefit amounts anytime online by establishing a My Social Security account.

3. Misunderstanding Taxable Income and Withholding – As your income sources and amounts change, so do your tax liabilities and options. It's important to know which sources of income are taxable so you know how much money to withhold. Otherwise, you may face an unpleasant tax bill and potential penalties for underpayment.

While most Roth IRA distributions are non-taxable, regular IRA and 401(k) distributions are taxed at your normal income rate, as is all income from your non-retirement sources, including capital gains, interest, and dividends. Any work you perform in retirement as an independent contractor will require extra withholding from some source to balance out the tax burden.

At higher total income levels, up to 85% of your Social Security benefits may be taxed as well. To find out, you'll need to calculate a "combined income" to see if you meet income thresholds. IRS Publication 915 can guide you through the process.

While these three tax-planning mistakes can put a dent in your retirement plans, they are by no means the only ones. It's important to do a comprehensive review of your finances heading into retirement and try to minimize your tax burden as much as possible.

If you need help assessing how your tax situation will change in retirement, seek the help of a qualified financial professional with experience in the field. Don't let your dreams of a pleasant retirement derail you from the preparation that it takes to get there.

Get your Refund Fast and File your Taxes for Free.

Originally Posted at: https://www.moneytips.com/3-top-retiree-tax-planning-mistakes

More from MoneyTips:
Three Biggest Mistakes in IRA Rollovers
Does Your State Tax Social Security
7 Ways To Minimize Taxes In Retirement