Nearing Retirement: 7 Tax Questions to Ask a Tax Professional

7 Tax Questions to Ask When You’re Coming up on Retirement


Written by John Rothans

Mar 5, 2021

You’re looking ahead to your golden years, and it dawns on you that they’re right around the corner. You’ve been preparing for retirement your whole life and feel pretty financially stable. But as you get ready to meet with your tax professional, you wonder what more you could be doing. What do you need to know from a tax perspective as you approach retirement? Keep these questions in mind when you meet with your tax professional.

Tax Questions

1. How Should I Spend My Tax Refund?

If you’re anticipating a tax refund, you may want to ask your tax professional what to do with the money. Options include:

  • Creating an emergency fund.
  • Paying off high-interest debt.
  • Purchasing alternative assets like gold and silver.
  • Boosting your retirement savings.

Those options can help put you in a better position for retirement than putting your tax windfall toward a big vacation or a splurge on material items.

2. Do I Have to Pay Taxes on Retirement Income?

While retirement may mean no more work, it doesn’t mean no more taxes.

You must pay income tax on Social Security benefits and pension benefits and on withdrawals from tax-deferred accounts like 401(k)s and traditional IRAs in the year you pull out that money.

However, with a Roth IRA, you won’t pay taxes on earnings or withdrawals as long as you adhere to IRS rules.

3. Where Can I Live to Avoid Paying State Income Taxes?

Although you’d still need to pay federal income taxes in retirement, you can steer clear of state income taxes in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, the lack of a state income tax in one of these nine states may be offset by a higher cost of living or other taxes (like sales and property taxes).

4. When Can I Begin Making Catch-up Contributions?

At age 50, you can begin making catch-up contributions for 401(k)s and IRAs.

If you hold a 401(k), you can contribute up to $19,500 in 2021. If you’re at least 50 years old, you can add another $6,500, bringing the total annual contribution to $26,000.

For 2021, the IRA contribution limit is $6,500. But if you’re at least 50 years old, you can chip in an additional $1,000 for an annual total of $7,500.

5. When Can I Start Making Withdrawals Without Tax Penalties?

The IRS lets you make tax-free withdrawals from retirement accounts like 401(k)s and IRAs after age 59½. Before that, you may be required to pay federal tax on the amount withdrawn, in addition to a 10% tax penalty.

6. Do I Have to Pay Taxes on Gifts I Give to Relatives and Friends?

Before you retire, you can give tax-free gifts to relatives and friends up to a certain dollar amount. For 2021, the amount is $15,000 per recipient. Some may enjoy giving gifts to those they know and love before leaving an inheritance.

Should I Open a Self-Directed IRA?

Setting up a self-directed IRA enables you to put money into alternative assets, such as real estate or precious metals. If you open a self-directed traditional IRA, you can enjoy access to alternative assets and may be able to take tax deductions on contributions. With a self-directed Roth IRA, you cannot take tax deductions on contributions. However, withdrawals from a Roth IRA are tax-free, whereas withdrawals from a traditional IRA are not tax-free.

If you decide to put precious metals into a self-directed IRA, you will actually own physical gold, silver, platinum, or palladium. But you won’t take possession of those precious metals. Instead, an IRS-approved depository will hold your gold, silver, platinum, or palladium.

Get answers to these questions from your tax professional. Then call U.S. Money Reserve for a free one-on-one consultation. We have representatives standing by to answer any questions you might have about buying physical gold and keeping it at home—or buying gold that you could put into an IRA.


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