Top tax mistakes retirees may make

Retirement is a time when many people want to enjoy their golden years without the stress of finances. However, retirees still need to be mindful of taxes to avoid costly mistakes. Here are some of the top tax mistakes retirees make:

1. Not Accounting for Required Minimum Distributions (RMDs)
Retirees with traditional retirement accounts, such as 401(k)s and IRAs, are required to take RMDs once they reach age 72. Failing to take the RMD or taking less than the required amount can result in a penalty of up to 50% of the shortfall.

2. Ignoring Taxation of Social Security Benefits
Retirees who have other sources of income in addition to Social Security may have to pay taxes on a portion of their benefits. Failing to account for the taxation of Social Security benefits can result in an unexpected tax bill.

3. Overlooking State Taxes
Retirees who move to a new state in retirement may be surprised to learn that their state of residence may impose taxes on their retirement income. Some states, such as Florida and Texas, have no state income tax, while others, such as California and New York, have high state income tax rates.

4. Not Taking Advantage of Tax-Advantaged Retirement Accounts
Retirees who do not take advantage of tax-advantaged retirement accounts, such as IRAs and 401(k)s, may miss out on potential tax savings. These accounts offer tax-deferred growth or tax-free withdrawals in retirement.

5. Failing to Plan for Estate Taxes
Retirees who have a sizable estate may be subject to estate taxes. Failing to plan for estate taxes can result in a reduced inheritance for loved ones.

6. Making Incomplete or Inaccurate Tax Filings
Retirees who do their own taxes or work with a tax preparer should ensure that all income sources, deductions, and credits are accurately reported. Failing to do so can result in fines, penalties, and additional taxes owed. In conclusion, retirees can avoid costly tax mistakes by accounting for RMDs, understanding the taxation of Social Security benefits, considering state taxes, taking advantage of tax-advantaged retirement accounts, planning for estate taxes, and filing complete and accurate tax returns. It's important to consult with a financial advisor or tax professional to ensure that all tax considerations are taken into account in retirement