{"id":9069,"date":"2016-04-22T07:16:39","date_gmt":"2016-04-22T12:16:39","guid":{"rendered":"https:\/\/www.senioradvisor.com\/blog\/?p=9069"},"modified":"2020-10-14T08:36:34","modified_gmt":"2020-10-14T13:36:34","slug":"early-retirement-tax-considerations","status":"publish","type":"post","link":"https:\/\/d30braiqprupoq.cloudfront.net\/blog\/2016\/04\/early-retirement-tax-considerations\/","title":{"rendered":"Tax Considerations for Early Retirement"},"content":{"rendered":"

Tax Considerations for Early Retirement\"Tax<\/h1>\n

You\u2019ve been working for a long time. You\u2019re ready for some rest. You\u2019ve been pondering the idea of early retirement for a while now, and you\u2019re pretty sure you have enough saved to take the plunge and go for it. What will this mean for your taxes?<\/span><\/p>\n

For the most part, you can count on paying less since you\u2019ll be making less, but you will still have to pay taxes on most of the types of income you\u2019ll have.<\/span><\/p>\n

Your Retirement Accounts<\/h2>\n

Different types of retirement accounts are taxed differently, but most include some penalty for pulling your money out before a certain age.<\/span><\/p>\n

Traditional IRA<\/b><\/h3>\n

Traditional IRAs are popular for providing tax benefits over the life of the time you have them. You can deduct all the money you put into them as you go and don\u2019t have to pay any money on the gains made each year. All that\u2019s nice at the time, but it\u2019s when you withdraw the money that you get hit with the taxes on it. \u00a0Expect to pay taxes on the full amount you withdraw. If you\u2019re not yet 59 \u00bd, then you\u2019ll also face a 10% penalty on the withdrawal. <\/span><\/p>\n

Roth IRA \u00a0<\/b><\/h3>\n

A Roth IRA is actually your best bet for early retirement since there\u2019s no penalty for taking the money you\u2019ve contributed out early, as long as you leave any gains that have been earned in there. If you do want to withdraw everything, you\u2019ll incur a 10% penalty on the gains and you\u2019ll also need to pay taxes on them. Contributions to Roth IRAs are taxed before you deposit them, so your withdrawals will otherwise be tax-free. <\/span><\/p>\n

401k and 403b<\/b><\/h3>\n

401ks and 403bs both work the same way. As with a traditional IRA, you make pre-tax payments into the account (which employers sometimes match up to a certain point) and then are taxed on the money when you withdraw it. As with a traditional IRA, any money you take out before the age of 59 \u00bd will have a 10% penalty in addition to being taxed.<\/span><\/p>\n

Early Retirement Tax Tip: Convert Traditional IRA to Roth<\/h2>\n

This is a little tricky and may require the help of a professional, but it is possible to invest in a traditional IRA in the years you\u2019re working, then start to <\/span>convert your money over<\/a><\/strong> to a Roth IRA once you start early retirement. If you convert an amount that\u2019s equal to your deductions and exemptions and live off your capital gains, you can essentially get your retirement money tax-free. <\/span><\/p>\n

Make Sure You Consider Taxes in Your Calculations<\/h2>\n

Nothing about retirement gets you off the hook for making tax payments to your government. So don\u2019t forget to consider your taxes when you\u2019re doing the calculations to determine if early retirement is feasible.<\/span><\/p>\n

If you\u2019re open to moving to a new state after your retire, you may find some that have more favorable tax laws that allow you to keep more of your retirement savings and any other income you have. Do some research to see if a state you\u2019re willing to consider for your future home may make early retirement more of a reasonable possibility for you.<\/span><\/p>\n

And don\u2019t hesitate to talk to a professional. This stuff is complicated and it\u2019s best to know for sure that you understand what to expect before making such a big decision. If you can swing it financially though, early retirement can provide you with more happy years in which your time is fully your own (even if your money is still partially the government\u2019s). <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Tax Considerations for Early Retirement You\u2019ve been working for a long time. You\u2019re ready for some rest. You\u2019ve been pondering the idea of early retirement for a while now, and you\u2019re pretty sure you have enough saved to take the plunge and go for it. What will this mean for your taxes? For the most part, you can count on […]<\/p>\n","protected":false},"author":2199,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[200,162],"tags":[287,165],"class_list":{"0":"post-9069","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-families-caregivers","7":"category-retirement-planning","8":"tag-financial-assistance","9":"tag-retirement-planning-2"},"acf":[],"yoast_head":"\nTax Considerations for Early Retirement - SeniorAdvisor.com Blog<\/title>\n<meta name=\"description\" content=\"You\u2019ve been pondering the idea of early retirement for a while now, and you may have enough saved to go for it. 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