Tax Checklist When You're Getting Ready to Retire

Retirement 401K Files

Are you thinking about retiring soon? When you leave the workforce, your tax situation can change drastically. Here's a quick checklist to go through once you're ready to start contemplating retirement:

Understand Your Expected Gov Benefits

The easiest way to find information on your expected government benefits is to review your latest Social Security statement. Statements are mailed from the Social Security Administration to taxpayers after they reach the age of 60. Statements will contain information on how much they have paid into the system throughout your life.

Upon review, if any numbers do not look correct the taxpayer should contact the Social Security Administration prior to benefits starting. Benefits are based on an average of the highest-paying 35 years of your life.

The Social Security Administration considers ages 65-67 to be full retirement age. The exact age depends upon the year you were born. Benefits can be taken as early as 62, but taking benefits early will lower the monthly payments. If you have financial or health reasons to start Social Security earlier than full retirement age (job loss or inability to keep working) waiting until full retirement age may not be an option, however, your benefit amount will be smaller than if you hold out.

Whether or not social security benefits are taxed depends on the retiree's total annual income. In most cases, if an individual has little income outside of their Social Security they will not pay federal income taxes on this.

"Catch-up" Contribution

Max out the contribution limits on retirement accounts. For a majority of retirement plans, including 401(k) plans through an employer, you have a "catch-up" contribution you can make every year, usually starting at age 50. Taking advantage of catch-up contributions allows the individual to put aside as much as possible before retirement and reap the tax benefits while you're working and presumably in a higher tax bracket.

Minimum Distributions

Even if you're still working, you have to start taking required minimum distributions (RMDs) from traditional IRAs, 401(k) plans, and other tax differed plans at age 70 ½. Since these distributions will be taxable, you should look at all of the income you plan to receive in retirement and consider a time-line for distributions from these accounts.

Consider Where You Will Retire

You may have many factors for choosing where to retire, like proximity to family or a pleasant climate, but taxes are another one. Seven states do not have an income tax at all (for a list see Four Things to Know about State Filing). Others (like Pennsylvania) don't tax retirement income at all, or only tax the first $10-20,000 of non-Social Security retirement income like New York. No matter your plans, understanding the state tax consequence for retirement is an important step of preparing.

After Tax Contributions

Q&A: What is Form SSA-1099?

Form SSA-1099 is used to report any Social Security benefits that you may have collected during the year.

Box 3 asks for a distribution code which shows the amount paid for Medicare.
Box 5 shows the net amount of benefits paid for the year.
Box 6 is a Checkbox where the filer indicates if the account is an HAS, Archer MSA or MA MSA.

Information from the SSA-1099 can be entered by selecting the form SSA-1099 within the Federal Section of the's software and under Income.

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