The tax bite of distributions shows the importance of financial planning – InsuranceNewsNet

Dear Liz: While preparing my 2021 tax returns, I was dismayed to learn that my first required minimum distributions from my retirement account pushed me into the highest tax bracket of my life and caused 85% of my modest Social Security benefit to become taxable. Since retiring five years ago at full retirement age, I have never had to pay taxes on my Social Security as it was the majority of my earnings. In my remaining years, I wonder if there’s anything I can do to avoid paying about $8,000 to $9,000 a year in income taxes!?

Even a partial conversion from a 401(k) to a Roth IRA would surely increase my Medicare Part B premium, another financial problem. I’m not wealthy, just middle middle class, and my financial goals are to carefully plan my necessary expenses so that I don’t run out of funds. I don’t need to leave an inheritance for my two adult children.

Answer: You’re probably right that Roth conversions aren’t the answer now, although they might have been useful earlier. You also may have been able to reduce the overall taxes you pay by waiting until age 70 to claim Social Security and taking your 401(k) distributions instead.

You can discuss your situation with a tax professional to see if there are other possibilities to reduce your taxes. Most of the time, however, your situation illustrates why it’s so important to get professional financial planning and tax advice well before you retire. Even if you think you’re knowledgeable, you’re inexperienced — you’ve never retired before, whereas experienced financial planners and tax specialists have guided many people through this stage of their lives.

Some of the decisions you make about retirement are irreversible and can have a profound effect on the amount of money you can spend. Ideally, you should meet with a fiduciary paying financial planner only five to 10 years before your retirement date and do several checks to make sure your financial plan is sound before giving your opinion.

Dear Liz: I disagree with your suggestion to move to electronic documents rather than using US mail. People should keep an eye out for dodgy players like cable and cell phone companies, where it’s important to watch out for sneaky new charges or “expiring discount rates.” The same goes for credit cards, where fraudulent charges are likely to appear. I know I will open and read an invoice in the mail whereas emails are much more likely to be deleted unread. It’s a personal preference, but I think it’s good financial discipline. Also, good luck refinancing or getting a loan using electronic statements – lenders refuse them.

Answer: Your last statement may have been true for some lenders before the pandemic, but the financial sector was rapidly digitizing even before the shutdowns began. After all, uploading electronic documents is much faster and more secure than relying on mail. Our last refinance was handled entirely electronically, although we had to sign a few closing documents in person with a notary sitting six feet away on our porch. Even if our lender had asked for a hard copy of an electronic document, it wouldn’t have been a problem: that’s what printers are for.

If you’re used to scrutinizing paper invoices while ignoring your email, switching to electronic documents can be tricky. Some people use personal finance apps to help them monitor what’s going on in their accounts while others put reminders on their calendars to review their transactions.

Reminders can also help you avoid paying more when you take advantage of a limited-time offer, such as an introductory rate for a service or a promotional rate on a credit card. Write the expiration date on your calendar to encourage you to renegotiate with the company or find another agreement.

Simplifying your finances can also help you detect fraud and unnecessary charges more easily. It’s easier to monitor one checking account, one savings account, and one credit card than a set of accounts spread across multiple companies.

Of course, there will be people who simply cannot change lifelong habits. For those who can, however, electronic documents are the way to go.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form on

Personal finance

Liz Weston