For many, retiring is an opportunity to simplify your life and spend the golden years doing things you love. However, while your daily life might get easier, tax preparation can become more complex, especially if you’re drawing funds from several sources. If retirement is looming, here are a few ways your taxes might change.

How Does Tax Preparation Change After Retirement? 

1. Change in Tax Bracket

Generally, most people expect to earn somewhat less in retirement than they did during their working years, but the income from different savings vehicles can add up. If your earnings do drop, your tax burden might go down if you land in a lower bracket. However, Social Security, a 401(k), and pension might increase your tax liability. Remember, mandatory disbursements from traditional IRAs are counted as taxable income, while money can be withdrawn from a Roth IRA without penalty.

2. Required IRA Disbursements

After you turn 70-and-a-half, the IRS requires you to withdraw a certain percentage from your IRAs every year. If you fail to do so, you could be slapped with a 50% penalty, on top of the income tax owed. For instance, if you’re in the 12% tax bracket and miss a $5,000 disbursement, you’ll have to pay $3,100 in taxes. Retirees with several IRAs can total their value and make one withdrawal from one account without penalty, as long as the amount matches their minimum required distribution.

3. Social Security Taxes

Depending on your total income, your Social Security benefits might be taxable. To determine whether you need to pay taxes, add up all your income, plus half of your Social Security benefits. If the total is more than $25,000 for an individual or $32,000 for a married couple, your Social Security will be subject to income tax.

Every dollar counts after retirement, so you don’t want to pay more taxes than you have to. For skilled tax preparation services and advice, retirees throughout Mountain Home, AR,  rely on The Callen Accounting Group, PLLC to help minimize their tax burden and save as much money as possible. Visit their website to learn more about their personalized services, or call (870) 425-6066 to make your first appointment today. For more tax preparation tips, like them on Facebook.