Planning to Retire in 2027? Tax Steps to Take Before You Retire

If you’re planning to retire in 2027, you’re probably thinking about when your last day of work will be, what you want to do with your extra time, and whether you’ve saved enough to comfortably make the transition. One thing that’s easy to put off is figuring out what your taxes are going to look like once the regular paychecks stop.

Retirement can change your tax situation quite a bit. Instead of receiving most of your income from an employer, you may start receiving money from several different places, including Social Security, a pension, a 401(k), an IRA, investments, rental properties, or even part-time work. Those sources of income aren’t all treated the same for tax purposes.

If you’re retiring next year, now is a good time to start estimating what your income will actually look like in retirement. Knowing approximately how much you expect to receive from each source can give you a much better idea of what you may owe in taxes and how much money you’ll really have available each month.

Social Security is one area that sometimes catches new retirees by surprise. Depending on your total income, part of your Social Security benefits may be taxable. Income you receive from pensions, traditional retirement accounts, investments, and other sources can affect that calculation. That means taking a large withdrawal from a 401(k) or IRA can have a bigger tax impact than you might expect.

You’ll also want to take a close look at your retirement accounts before leaving your job. If you have a 401(k) or another employer-sponsored retirement plan, understand what happens to that account after you retire and what options you have for keeping the money there, rolling it over, or beginning withdrawals. Moving retirement money incorrectly can create unnecessary taxes and withholding, so this is something worth planning before making a large transfer.

Your final year of employment can also be an important opportunity to put additional money into retirement accounts while you’re still earning a regular paycheck. Depending on your age and the type of plan you have, you may qualify to make additional catch-up contributions. Before retiring, it makes sense to review how much you’re contributing and whether increasing that amount during your remaining months of employment fits your overall financial plan.

Another change that comes with retirement is how your taxes actually get paid. When you work for an employer, taxes are normally withheld from every paycheck without you having to think much about it. Once you retire, you may need to arrange withholding from pension or retirement distributions, request withholding from Social Security, or make estimated tax payments during the year.

This is one of the reasons it’s better to plan before retirement rather than waiting until you file your first tax return afterward. Nobody wants to get through their first year of retirement only to discover they owe a much larger tax bill than expected.

Large purchases also deserve some extra thought after you retire. Maybe you want to pay off your house, buy an RV, purchase a new vehicle, travel, remodel your home, or help your children or grandchildren financially. If the money for that purchase is coming out of a traditional retirement account, remember that the withdrawal itself may be taxable. Taking out a large amount at once can significantly increase your taxable income for that year.

Investments outside of your retirement accounts should be considered as well. Selling stocks, mutual funds, real estate, or other investments can create capital gains. Because your income may drop after you stop working, the timing of those sales can matter. Looking at your retirement withdrawals, investment income, Social Security, and other income together can give you a much clearer picture than making each decision separately.

You should also understand how your state treats retirement income, especially if you’re thinking about moving after you retire. State tax rules vary considerably. A move to another state can change how pensions, retirement distributions, investment income, and other income are taxed.

Required minimum distributions are another issue to keep on your radar. Under current federal rules, many retirement account owners eventually have to begin taking distributions from traditional IRAs and certain employer-sponsored retirement accounts. Even if you’re retiring before those requirements apply to you, thinking several years ahead can be useful. A large balance in a tax-deferred retirement account can eventually create significant taxable income when required distributions begin.

The year before retirement is really about getting a clear picture of what comes next. You don’t need to have every detail of the next 20 or 30 years figured out, but you should know where your retirement income will come from, which portions may be taxable, how you’re going to pay those taxes during the year, and whether there are decisions you should make while you’re still working.

If you’re planning to retire in 2027, now is a good time to sit down with a tax professional and go through the numbers before making any major moves. TaxPointe can help you review your current tax situation, expected retirement income, retirement accounts, withholding, and other factors that may affect your taxes after you leave the workforce.

Planning ahead can make the transition into retirement a lot easier—and help make sure your first year of retirement doesn’t come with an unexpected tax bill.

Contact TaxPointe today to start preparing for your 2027 retirement.