Why tax time is a good time to check your retirement plan

Tax season is often met with heavy sighs as Americans gather the necessary paperwork and prepare for the annual deep dive on their finances. While it can be a tedious process (and painful if you have to pay additional taxes), tax season is also a good time to give yourself a financial checkup – particularly if you are approaching retirement age.

As you work through 2018 taxes, take a step back, reassess your overall financial goals, review your current investment strategy, and more specifically, make any necessary changes to stay on track for your retirement plan.

Here are a few things to think about as you review your taxes and prepare for retirement in the next few years:

• Maximize account contributions.

• Tapping retirement funds.

• Review investment risk.

Max Out Your Retirement Account Contributions

While you are reporting on your contributions to various retirement accounts in 2018, check to see if you're really contributing the maximum amounts possible.

For both Roth and traditional individual retirement accounts (IRAs), the 2019 contribution limit is $6,000, up from $5,500 in 2018. What's more, all of us in the 50-plus crowd can add another $1,000 as a catch-up contribution. There are, however, income limits on making contributions to a Roth IRA.

The maximum contribution for 401(k) accounts is also higher in 2019. For those under 50, the maximum is now $19,000 ($18,500 in 2018). If you're 50 or older, the contribution limit is now $25,000, up from $24,500 in 2018.

Another benefit of contributing to traditional IRAs and 401(k) accounts is that you can save money on taxes now, though you will still have to pay income tax when you start to draw down the accounts in retirement. For Roth IRAs, you've already paid taxes on the money going in, so those contributions and earnings coming out in retirement are generally income tax free.

The easiest way to boost your contributions to these accounts is to make them automatic. If you don't see the money in the first place, you won't miss it. That can make it a little easier to increase your monthly contributions and make the most of catch-up contributions. Additionally, if your employer offers a match to employee 401(k) accounts, be sure to max that out – otherwise you're turning down free money.

If you're getting a tax refund this year, consider putting that toward a retirement account to help easily boost your contributions.

Discuss How You Will Begin to Take Your Retirement Income

A key consideration as you prepare for retirement is knowing exactly how much you will need each month, how you will receive income and from which accounts the money will come. Keep in mind that you will still have to pay taxes on the income from many of these accounts and that Social Security income can be taxed as well, depending on how much overall retirement income you receive. If you're married, how you file taxes also plays a role. Be sure to check with your tax professional on how to navigate this.

A retirement income strategy is critical. Work with your financial professional and a qualified tax advisor or attorney to help answer some key questions. Should you defer Social Security payments and start to draw down your IRAs right away? If you have an annuity, how will payouts impact your income and tax strategies? How much can you safely withdraw from your stock and bond portfolios without risking your long-term retirement plans?

Remember that if you're turning 70½ this year, you are required by the government to take required minimum distributions (RMDs) from most qualified retirement accounts. This means you must start to draw down your traditional IRAs. These RMDs then become part of your taxable income. Other qualified retirement plans, including 401(k)s, also require RMDs. Be sure to check with your plan administrator and tax professional for help navigating RMDs.

Review Risk and Make Sure You Are Protected

As people get closer to retirement, they become more risk adverse in order to preserve their hard-earned funds as much as possible. Pulling back from exposure to the stock market and seeking out financial products that offer a level of protection from downside risk are two steps to consider.

Work with your financial professional to assess your current risk exposure and determine if it makes sense to increase investment diversification in your portfolio, particularly if you are approaching your target retirement age. Keep in mind diversification does not ensure a profit or protect against loss.

Tax season offers a chance to confront your finances head-on whether you like it or not – but that doesn't have to be a bad thing. Use this time when you are already neck-deep in financial matters to consider your retirement goals and ensure you're taking the appropriate steps now to create a comfortable retirement in the future.

Disclosures: This article is for general informational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Co. of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Clients are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations. Distributions are subject to ordinary income tax and, if taken prior to age 59½, a 10 percent federal additional tax. Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity's features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan. Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions. Products are issued by Allianz Life Insurance Co. of North America. Variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. Product and feature availability may vary by state and broker/dealer.

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