by: Denise Appleby, CISP, CRC, CRPS, CRSP, APA
Benjamin Franklin was right when he said “In this world nothing is certain but death and taxes”, or was he? Apparently, death is certain, but some taxes can be avoided, and failing to take the proper measures to avoid them can take the spice out of your retirement, hire the tax accountant bondi services and avoid the headache. Let’s take a look at some of these taxes and how they can be avoided:
10-Percent Additional Tax
The IRS assesses a 10% additional tax on withdrawals that you make from your retirement account, if those withdrawals are made before you reach age 59 ½. This additional tax, commonly referred to as an early distribution penalty, can take a big bite out of your retirement nest egg. Consider, for instance, if you make a withdrawal of $100,000 you would owe the IRS a $10,000 early distribution penalty.
Avoiding This Tax
Waiting until you are at least age 59 ½ before making withdrawal seems like the simple solution to avoiding this tax. But that’s easier said than done when you have a financial need and no other financial resource available to fill that need. The IRS understands this and will waive this tax if your distribution is taken for certain specific purposes. See early distribution penalty exceptions for a list of these instances under which the IRS will grant a waiver of the penalty.
50 Percent Excess Accumulation Penalty
Making withdrawals from your tax deferred retirement account is optional until you reach age 70 ½, at which time you must start taking required minimum distributions (RMD). Additionally, if you inherit a retirement account, whether a traditional tax-deferred or (potentially) tax-free Roth account, you must take RMD amounts.
RMD amounts must be taken by certain deadlines. For instance, if you have an RMD due for this year, it must be withdrawn from the account by December 31. If you miss this deadline, you will owe the IRS an excess accumulation penalty of 50% of the RMD amount that was not withdrawn by the deadline. For instance, assume your RMD for this year is $10,000, and you withdraw only $2,000 by December 31, you will owe the IRS a penalty of $4,000 (50% of the $8,000 that was not withdrawn by the deadline).
Avoiding This Tax
Avoiding this tax (penalty) is as simple as making sure you take your RMD by the deadline. If you miss the deadline, talk to your financial or tax or tax professional, as they may be able to work with the IRS to get the tax waived.
The rate at which your retirement income is taxed at the state level varies among states. For instance, Florida’s tax rate is zero (0%), while Oregon’s tax rate is as much as 11% depending on your income level. If you live in a state where there is a high tax rate on income from retirement accounts, consider whether it makes good financial sense to spend your retirement in more retirement and tax friendly state. When making the decision, be sure to take into consideration other factors such as property tax rates, sales tax, and exemptions allowed for older individuals. If you need help, you can find insurance services here.
Take the Bold Step of Avoiding Taxes
Taxes can mean the difference in the level of quality of your retirement, as any money paid in taxes ultimately reduces your amount of disposable income. The tax laws include provisions that allow you to avoid some taxes. Take the bold step and use the provisions in these laws to your benefit, if those (avoidable) taxes are taking the spice out of your retirement. Consult with a phoenix cpa specialist to see what your best tax preparation options are. But, if your options include moving to another state, consider whether it will mean moving too far away from loved ones, and whether you would find the weather and lifestyle tolerable.
 If you have assets in an employer plan such as a 401(k) or pension plan, your employer can allow you to defer beginning your RMD past age 70 ½, if you are still in their employ
 An exception applies to the year you reach age 70 ½. Under this exception, you can defer taking your RMD for that year until as late as April 1 of the following year
 Source : http://www.taxfoundation.org/taxdata/show/228.html