Taxes don’t go away once you retire, and if you’re not preparing for them, they could wreck havoc on your retirement plans. We have three tax rules that could help you avoid unpleasant financial surprises in your retirement.

1. INCOME TAXES ON SOCIAL SECURITY – Even though you’ve been paying into the Social Security program for decades, you may owe taxes on your benefits themselves once you retire. Your monthly checks may be subject to both state and federal income taxes. State taxes will depend on where you live, and fortunately, there are only 13 states that do tax benefits. Federal taxes, though, depend on your income in retirement. (Here’s the 13 states: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and west Virginia)

Whether or not you’ll owe federal taxes on your Social Security benefits will depend on your “provisional income” — which is your adjusted gross income, plus your annual benefit amount, plus any nontaxable interest. If your provisional income is higher than $25,000 per year (for individuals) or $32,000 per year (for married couples filing jointly), up to 85% of your benefit amount will be subject to income taxes.

2. INCOME TAXES ON RETIREMENT FUND WITHDRAWALS – If you’re saving in a tax-deferred account such as a 401(k) or a traditional IRA, you haven’t paid taxes on any of your retirement contributions so far That means once you retire and start making withdrawals, you’ll owe income taxes on your distributions. Even if you’re already aware that you’ll need to pay taxes, it’s a good idea to estimate approximately how much you’ll owe each year and factor that into your retirement budget. Income taxes can take a larger bite out of your savings than you may expect, and if you underestimate your tax bill, your savings may not go as far as you need them to.

3. REQUIRED MINIMUM DISTRIBUTIONS – Not only will you owe income taxes on your 401(k) and traditional IRA withdrawals, but you also need to withdraw a certain amount each year. These withdrawals are called required minimum distributions, or RMDs. You’re required to start taking RMDs once you turn 72 years old, and the size of your RMD will depend on your age as well as how much money you have in your retirement accounts. If you don’t take your RMD, you’ll face a hefty tax penalty: 50% of the amount you were supposed to withdraw. So, for instance, if you have an annual RMD of $30,000 and you skip it entirely, you’ll be slammed with a $15,000 tax penalty!

Taxes can be a headache and it can be difficult to avoid them entirely. That’s why you need a true fiduciary like Coach Pete D’Arruda and his team at Capital Financial on your side to help take the worry out of retirement. Make an appointment and come in and sit down and have them look over your retirement plans to make sure you don’t get caught unaware of these and many other retirement pitfalls. It’s never too early to get a proper plan in place!