Although the Social Security earnings test is a very complicated and misunderstood rule, eliminating it could “do more harm than good,” according to this article from MarketWatch. “Because people don’t understand that any withholdings are credited back, they view the earnings test as a tax and may work less,” writes Alicia Munnell, director of Boston College Center for Retirement Research. “The benefits of eliminating the earnings test are reduced complexity and some increase in work incentives, but the risk is increased poverty among the very old as workers claim their benefits earlier.”
Although holding foreign stocks in taxable accounts enables investors to qualify for a tax benefit, parking these stocks in tax-deferred retirement accounts like traditional 401(k)s and IRAs is not at all a bad idea, writes an expert on Morningstar. While foreign stocks are “particularly disadvantageous for tax-sheltered accounts..., that disadvantage doesn't entirely negate the fact that tax-sheltered accounts offer tax-deferred growth (traditional IRAs and 401(k)s) or tax-free growth (Roth accounts),” the expert explains. “Those long-term tax-saving features help make up for the dividends you received, paid foreign taxes on, and couldn't offset with a credit.”
Although financial security is very important in retirement, clients should not focus solely on this as they prepare for the golden years, according to this article on Forbes. It is also important for seniors to have a sense of purpose after leaving the labor force for good. Retirees who have a purpose in life are less likely to get chronic illnesses, and studies have found that living a purposeful life has bigger benefits to health than exercise and diet.
An expert advises seniors filing taxes for the first time as retirees to consider converting some of their traditional IRA assets into a Roth account to achieve account diversification, according to this article on TheStreet. That’s because owning accounts with different tax treatments will give them greater flexibility and allow them to reduce the tax bite on their income, explains the expert. “You want to have the ability to take money from whatever account gives you the most tax efficiency.”
