We wrote a few weeks ago on our BLOG about our target of hitting a $0 refund/payment on tax returns. One of the best ways to control your tax return is through the withholdings that you establish on your income payments and IRA withdrawals.

When it comes to retirement and withholding, you need to understand that there is a psychological component. If you opt to NOT withhold from your Social Security or pension income checks and withhold MORE from your IRA distributions, you are potentially putting yourself in a stressful situation. When it comes to your income checks from SS/pensions, it is likely easy to just have the taxes withheld and work with an after-tax amount into your account. On the flip side, if you do the bulk of your tax withholding on your IRA distributions, you will see your net worth dropping quicker than it normally would as you use those funds to pay more taxes.

This is a subtle topic in the financial planning landscape, but it has the ability to save you from some unnecessary angst and worry. Remember, the IRS is GOING TO GET PAID what they are owed regardless of where it comes from. You have control of the logistics so you can use them to your mental advantage!

Next up: A Balancing Act – Pre-Tax and Roth Contributions to Your 401(k)

Disclosures

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.