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Start Planning Now for a Stress-Free Tax Season

By Michele Harris
February 12, 2022

It's never too early to get your financials in shape.

"In any new year, it's important for retirees to take inventory of their taxable income and potential deductions, and determine what moves might be advantageous for them to limit tax liabilities moving forward," says Jim Ciprich, partner and wealth advisor at RegentAtlantic, a financial planning and wealth management firm.

Time to take stock of your options

“Given the past several years of gains in the stock market, the New Year may be a time to take investment winnings off the table and rebalance portfolios.”

There are many changes in both federal and state tax codes this year, so Ciprich suggests you talk with your financial advisor early to see how new laws will impact your tax status and what actions you can take to minimize your tax liability.

“For seniors with significant unreimbursed medical expenses, it’s important to keep track of those,” says Ciprich. “If they exceed a certain threshold of income, they may be included as an itemized deduction. While we hope to not incur excessive expenses related to medical care or prescription medications, utilizing those deductions can have a meaningful impact.”

Beware of the pension-payout trap

Adam P. Scherer—founder of Greenbeat Financial, a fee-only financial planning firm—notes that if you are retiring this year and plan to accept a lump-sum payout from your employer, with the intention of placing it into an individual retirement account (IRA), beware of what’s called the “pension-payout trap.”

Scherer says that the Internal Revenue Service (IRS) will withhold 20% of your lump sum until you file a tax return and request a refund. To add insult to injury, you’ll be required to pay the missing 20% (held by the IRS) when rolling over your lump sum to avoid it being classified as a “taxable distribution.”

“Luckily, there is a quick fix to this trap,” says Scherer. “Simply inform your employer [well in advance] to send your lump sum directly to your IRA. Provided the check is made out to the IRA and not you, the IRS won’t hold your 20% ransom!”

Get expert advice

Consult your financial planning advisor for specific recommendations based on your individual financial situation.