If you’re like many UC employees, you contributed to the UC 403(b), 457(b), and/or DC Plan while you were working. Now, the time has come to use that money.
Managing your withdrawals with taxes in mind can help boost your income in retirement. Not only do taxes reduce your income, they can diminish potential future earnings and growth, which affects how long your savings may last.
The aim is to manage your withdrawals to help reduce the amount that is taxed, while maximizing the ability of your remaining investments to grow tax efficiently.
One potential strategy: Use money from your savings and retirement accounts in the following order. If you decide to use this strategy, remember one important caveat: If you are 70½ or older, you will need to take your minimum required distributions (MRDs) from your tax-deferred accounts first. The rules are complex, and everyone’s situation is unique, so be sure to check with a tax professional.
While the traditional withdrawal hierarchy of taxable, tax‐deferred, and tax‐exempt assets is a good starting point for many retirees, your situation and changing circumstances may require making adjustments. You might move from a low‐tax state to a high‐tax state, for example, or take withdrawals from tax-deferred accounts that push you into a higher tax bracket.
Other factors that could play a significant role in your retirement tax strategy are whether you intend to continue working, the income tax rate in the state and locality where you plan to retire, and how much of an inheritance you would like to leave for your family members or to a charity.
That’s why it is important to have an overall retirement income plan and regularly revisit it and update it when necessary. You can work with a Fidelity Retirement Planner to evaluate your decisions, plan out your strategy, and discuss how much and when to withdraw from your accounts. Call 1-800-558-9182 or visit getguidance.fidelity.com/universityofcalifornia to learn more.
The keys to managing withdrawals from retirement accounts are to know your situation and tax exposure, to understand the basics of smart tax planning, and to consult a trusted professional to get the help you need in designing a tax‐efficient retirement income plan.
You’ve worked long and hard to build your retirement savings; now, a little smart tax planning can help you maximize its value.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
A distribution from a Roth IRA is tax free and penalty free provided that the five‐year aging requirement has been satisfied and at least one of the following conditions is met: you reach age 59½, die, become disabled, or make a qualified first‐time home purchase.
A distribution from an HSA is federally tax free and penalty free provided that it is used for qualified medical expenses.
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