Planning for retirement is not always easy. How does one know if he or she really ever has enough money put aside? It is hard to know for sure, especially if one fails to consider income tax requirements. There are hidden tax burdens in retirement that numerous Connecticut residents may not know about, and it could be their undoing.
Retirees may have several sources of income, including Social Security, retirement funds, property sales and inheritance. When it comes to Social Security, whether it is taxed and how much will depend on how much one’s combined income is. Combined income is determined by adding one’s adjusted gross income, non-taxable interest and half of one’s Social Security benefit. Federal and state income taxes may take a bit out of one’s Social Security benefits.
In terms of retirement account funds, at the age of 70.5, many firms may require account owners to begin withdrawing funds. This would then increase one’s income level and could push a person into a higher tax bracket. There may be things that one can do to help avoid this.
When it comes to property sales, capital gains taxes can be a killer. Thankfully, up to $250,000 in profit may be exempt. Anything beyond that may be taxed anywhere from zero to 20 percent.
In terms of inheritances, receiving property or money from the estate of a loved one in one’s retirement years can result in a large tax bill. It all depends on the value of the inheritance. Currently, state taxes apply to inheritances valuing $2 million or more.
Hidden income tax requirements can end up hurting one’s quality of life in retirement. Knowing what these tax requirements are now can help one plan for the future. An experienced tax law attorney can assist Connecticut residents in preparing for and/or addressing tax issues that arise before or after retirement.