Month: September 2026

Retirement can bring some exciting changes to your finances. You may no longer receive a regular paycheck, but that doesn’t necessarily mean your tax obligations disappear. In fact, retirement can introduce several new sources of taxable income and tax considerations that are important to understand. Planning ahead can help you avoid surprises and make the most of your retirement income.

An Amherst resident was looking to retire in the next few months. Before making this big change, she wanted to first make sure she had a good understanding of how retirement would affect her tax situation. For advice on this, she contacted the team at Merrimack Tax Associates.

Your Income May Come From Multiple Sources

During your working years, most of your income may have come from a paycheck with taxes automatically withheld. In retirement, your income may come from several different sources, including Social Security benefits, pensions, traditional IRAs, 401(k)s, investment accounts, annuities, and part-time employment. Each source can have different tax rules. Understanding how these income sources work together is an important part of retirement tax planning.

Social Security May Be Taxable

Many retirees are surprised to learn that Social Security benefits can be taxable. Depending on your overall income and filing status, you may have to pay federal income tax on a portion of your Social Security benefits. Other income, such as withdrawals from retirement accounts, pensions, wages, and investment income, can affect whether your benefits are taxable. 

Retirement Account Withdrawals Can Create Taxable Income

Traditional 401(k)s and traditional IRAs generally contain money that has not yet been taxed. When you withdraw money from these accounts, the distributions are generally included in taxable income, subject to applicable rules. This means that the amount you withdraw can affect your overall tax bill. Retirees should consider not only how much money they need to take out, but also how those withdrawals may affect their tax bracket and other aspects of their tax situation.

Required Minimum Distributions Matter

Once you reach the applicable age, you generally must begin taking required minimum distributions, or RMDs, from certain retirement accounts. RMDs can create taxable income even if you don’t actually need the money to cover your living expenses. Failing to take required distributions can also result in significant tax consequences. It’s important to understand when your RMDs begin and how they fit into your overall retirement income strategy.

Medicare Costs Can Be Affected by Income

Your tax return can have implications beyond your income tax bill. Higher-income Medicare beneficiaries may pay additional amounts for Medicare Part B and prescription drug coverage. These income-related adjustments are generally based on your income from a prior tax year. As a result, certain retirement income decisions can potentially affect your future Medicare costs. This is one reason retirement tax planning should look at more than simply how much income tax you will owe.

Your Tax Withholding May Need to Change

When you were working, your employer typically withheld taxes from your paycheck. In retirement, you may need to manage withholding from pensions, retirement distributions, or Social Security benefits instead. If too little tax is withheld throughout the year, you could face a larger tax bill when you file your return. On the other hand, excessive withholding means you are giving the government more of your money during the year than necessary.

Consider Tax Planning Before You Retire

Retirement tax planning is often most valuable when it begins before retirement. Decisions about when to begin Social Security, how much to withdraw from retirement accounts, whether to convert traditional retirement funds to a Roth account, and when to sell investments can all have tax implications. There isn’t one strategy that works for everyone. Your income, retirement accounts, investments, filing status, and long-term goals all need to be considered together.

After speaking with Merrimack Tax Associates, the Amherst resident now has a better understanding of the impact retirement will have on her taxes going forward.

Fall is a great time to start thinking about your taxes. While the April tax deadline may still seem far away, waiting until tax season to review your finances can mean missing opportunities to reduce your tax bill, maximize deductions, or avoid an unexpected balance due. A little planning before December 31 can make tax season much easier. Here are seven things to consider before the year comes to an end.

A Nashua resident was proactively looking to make adjustments to his taxes before the end of the year. Doing this type of fall tax planning, will save him plenty of headaches down the road.

1. Review Your Tax Withholding

Take a look at your current income and the amount of federal and state taxes being withheld from your paycheck. If your income has changed significantly this year because of a new job, raise, bonus, second job, or other source of income, your withholding may no longer be appropriate. A fall review gives you time to make adjustments before the end of the year.

2. Maximize Retirement Contributions

Fall is a good time to review how much you have contributed to your retirement accounts so far this year. Depending on the type of retirement plan you have, increasing your contributions may provide valuable tax benefits. Check your current contributions and remaining room before the end of the year. If you receive a year-end bonus, you may also want to consider whether putting some of that money toward retirement makes sense for your overall financial and tax situation.

3. Review Your Flexible Spending and Other Benefits

If you have a flexible spending account (FSA), check your balance and understand your employer’s rules regarding unused funds. Some plans have deadlines for spending this money, while others may allow limited carryover or additional time. 

4. Gather Important Tax Documents

Don’t wait until March or April to start looking for tax documents. Begin organizing records now, including receipts, charitable donation records, mortgage information, investment statements, medical expenses, and other documents that may be relevant to your return. If you are self-employed or have a side business, make sure your income and expenses are being tracked accurately. Keeping organized records throughout the year can make preparing your tax return significantly easier.

5. Review Charitable Contributions

If you regularly make charitable donations, consider reviewing your contributions before December 31. Keep receipts and other documentation for qualifying donations, and remember that tax rules regarding charitable contributions can be specific. Depending on your circumstances, donating appreciated investments or other assets may have different tax consequences than donating cash.

6. Look at Investment Gains and Losses

If you have investments in a taxable account, fall is a good time to review your portfolio and consider whether you have realized or unrealized gains and losses. Investment gains can affect your tax liability, while certain investment losses may be used to offset capital gains, subject to applicable tax rules. Because investment transactions can have complicated tax consequences, it’s worth discussing potential year-end moves with a tax professional before selling investments simply to generate a tax benefit.

7. Schedule a Tax Planning Appointment

Perhaps the most important step is to talk with your tax professional before the end of the year. Your tax situation can change significantly from one year to the next. A marriage, divorce, new child, home purchase, retirement, job change, business venture, investment sale, or other major financial event may affect your tax liability. Meeting in the fall gives your accountant time to review your situation and identify potential tax-planning opportunities while there is still time to act.

Tax planning isn’t just something to think about after the calendar turns to January. Taking a proactive approach in the fall can help you make informed financial decisions before December 31 and potentially avoid surprises when you file your return.

With the help of Merrimack Tax Associates, the Nashua resident was able to make some small changes to his finances that will pay off big in the long run.