5 Steps Retirees Can Take Now to Reduce Tax Bill Later- Pro Series Q&A

Recently retired and thinking about a lump sum distribution from your pension plan? Our expert says, not so fast

Are you a recent retiree or planning to retire this year?

Greene-Lewis provides some advice for retirees on pensions, IRAs, the gig economy, self-employment, and more. 

Read the full Q&A below or watch the video above.

How to Reduce Your Tax Burden

Tracy Byrnes: A lot of people are pushed into retirement because of work situations. Many people choose to be done, and I don’t blame them some days. Lisa Greene-Lewis, TurboTax expert and CPA, is with us right now to talk about the things that retirees should and can be doing to minimize their tax burden come April. And one of the things you say, Lisa, is to think about a lump sum distribution from a pension plan.

1. Taxes and Lump Sum Distributions

Lisa Greene-Lewis: Yes, a lot of people considering retirement or, you know, retired this year. They don’t realize that if they’re getting a lump sum distribution, they may be taxed on that full amount unless they roll it over to an IRA within 60 days.

Quote: Lisa Greene-Lewis, CPA and TurboTax Expert

2. Tax Penalties and Early Retirement

Tracy Byrnes: Super important. Otherwise, you’re going to get hit with a big tax bill. In addition, if you retired before 59 and a half, you could be looking at taxes and penalties as well, right?

Lisa Greene-Lewis: Yes. A lot of retirees, you know, they get that lump sum distribution and they roll it over to an IRA and then they want to use that money. But if you are not 59 and a half yet, you’re going to get an additional 10% tax penalty on the withdrawals.

Quote: Lisa Greene-Lewis, CPA and TurboTax Expert

3. Consider Delaying Retirement

Tracy Byrnes: Right, so try to hold out because that’s your hard-earned money. The last thing you want to do is give it back to the government.

Lisa Greene-Lewis: Yes, or hold out on retiring if you can.

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4. Taxes and Retirement Side Hustles

Tracy Byrnes: Right, especially for Social Security purposes too. So a lot of retirees. And I say that in quotes, have moved on or are moving on to new gigs, right? Consulting, side jobs, side hustles. What should they be thinking about?

Lisa Greene-Lewis: They should be thinking about how additional streams of income could impact their Social Security if they’re able to get that, because additional income like, say, from your retirement or from your side gig, can impact how Social Security is taxed. Usually, if you’re only getting Social Security, typically that would not be taxed. But the other strings of income can impact that. And then also, you know, all these different streams of income can bump you into another tax bracket.

Tracy Byrnes: Right, so check out TurboTax because you might be needing to make estimates, and estimated tax payments throughout the year so that you don’t come up underfunded.

Lisa Greene-Lewis: Yes, so if you’re in this situation, you know, doing side jobs, consulting, it would be good to maybe sit down and evaluate right now. And you can make estimated tax payments four times a year so you don’t get any tax surprises. And you can also use TurboTax Tax Caster for planning and to see where you’re at right now.

5. Retirement, Taxes, and Self-Employment

Tracy Byrnes: And the other thing that a self-employed person now has to start thinking about is their expenses. So they really need to keep track of them.

Lisa Greene-Lewis: Yes, you want to keep track of your expenses to maximize how much you can deduct directly related to your business. So you can lower your taxable income. And also lower your self-employment taxes.

Tracy Byrnes: So this back half of your life can be fun and exciting, but keep track of everything so that you don’t give all your hard-earned earnings back to Uncle Sam. Lisa Greene Lewis, thank you so much for taking the time.

Lisa Greene-Lewis: Thank you for having me.

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