Top 10 Tax Myths Most Retirees Believe

1. There’s nothing I can do about the amount of tax I owe

The tax code is full of CHOICES we can make to make sure we aren’t tipping the IRS. Withholdings, filing status, qualified accounts, business structure, timing of income, and the list goes on. Don’t choose inaction.

2. There’s nothing I should do about the amount of tax I owe

There are no patriotic awards for paying extra to the IRS. You should only pay what you owe and look for every opportunity to owe less. Proactive tax planning gives you more control over how your hard earned dollars are spent.

3. Getting a refund means I’ve won the tax game for the year

A refund is just an interest free loan to the IRS. That’s it. It tells us nothing about how much the IRS kept. Taking intentional steps to reduce the total tax kept by the IRS is how we can get ahead and stop leaving the IRS a tip.

4. All CPAs are tax planning experts

CPAs spend most of their time on compliance, getting the forms filed each year. Having a tax preparer can be a great resource but it does not mean you have someone looking for proactive planning opportunities.

5. It’s too early to worry about my Retirement Tax

Many tax savings opportunities are capped annually on how much you can benefit from them. The earlier someone starts being intentional about taxes the better.

6. Tax laws are written by tax experts

Tax laws come from politicians. Period. Tax laws are about generating revenue and influencing behavior. The back-door Roth was literally created by accident. This means you can’t make assumptions about what is “logical”, that is not how the tax code was written. You or someone on your team have to be dedicated to tax planning to get the full value from the process.

7. Tax laws are always changing so there’s no point planning for the future, it’s all just a guess

See Myth #1. Doing nothing is still a choice. Taking action on proposed changes has heightened risk, and any tax planning (just like all planning) must include the risk of change.

8. My employer doesn’t offer a 401k so I can’t contribute to qualified retirement accounts

There are numerous ways employees and business owners can take advantage of qualified contributions. There are also non-retirement accounts, such as health savings accounts that taxpayers can take advantage of whether offered by an employer or not.

9. I have a CPA, I don’t need a financial planner

See Myth #4. There are of course exceptions, but not many. It is great to have a CPA in your corner but having a CPA on your team does not mean you have a tax planner on your team. If you hold tightly to this myth ask yourself “what did your CPA tell you when they reviewed your tax projection for the next year? Next 5 years?” In most cases, a tax preparer is not looking at projections.

10. $1,000,000 in my IRA means I can withdraw $1,000,000 when I retire

Deferring taxes is like having a variable rate mortgage with the IRS without any regulation on what the rates can be. Make sure you understand the tax liability that will eventually come due.

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This is not an exhaustive list of considerations. You should have a meaningful discussion with, among other people, your financial advisor that goes beyond the topics covered here. Neither Private Client Services, RFG Advisory nor Blake Wealth Management provide tax, legal or accounting advice. RFG Advisory cannot guarantee that the information herein is accurate, complete, or timely. RFG Advisory makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of such information.