Life and Tax Changes

Leaving your job

If you're retiring, you're likely ecstatic. But if you're leaving for another job (or have been asked to leave by your employer), the experience might be more bittersweet. Keep these tax issues in mind:

• Retirement plan distributions: What should you do with them? If you're simply changing jobs, it's probably best to transfer your retirement assets - such as a pension and/or 401(k) plan - to a traditional rollover IRA. If you move the funds into your personal account, they will be subject to taxes, and possibly penalties. But if you transfer them to a traditional rollover IRA, you can avoid current taxation. Even better, in an IRA, you're in control of your investment decisions, not some mutual fund manager. It's also possible that you can move your retirement assets directly from your old employer's plan to that of your new employer.
  
  
  


• Retirement payments: If you take your retirement as an annuity, rather than a lump sum, make sure to review your withholding again. It's possible that your tax bracket will change, and you'll have to understand how your new tax rate will affect the taxes (and withholding) on your retirement funds. Alternately, you might opt not to have any withholding taken from your retirement payments. In that case, become aware of how estimated taxes work, and how to play that game to avoid underpayment penalties.
  
  
  
  


• Social Security: If you're fortunate enough to retire, it's possible that you'll be receiving Social Security payments. Did you know that, at certain income levels, up to 85% of your Social Security benefits will be taxable? If this is a surprise to you, you might want to read more about the taxability of Social Security benefits.

Virtually every life event will affect your taxes in some way. Even if your life isn't changing, the tax laws are. It's up to you to be vigilant in keeping as much of your money as you possibly can.

Tags: tax, usa, marriage, new+career