Can You Divorce the IRS If You Have a Pension?

If you're expecting a pension in retirement, your strategy for divorcing the IRS may look very different from someone relying primarily on Social Security and investments.

In this episode of the Divorce the IRS Podcast, we wrap up our three-part case study series by looking at how taxable pension income affects your Ideal Number and the amount you may want to keep in tax-deferred retirement accounts.

Pensions can be an incredible retirement benefit. They can provide guaranteed lifetime income, reduce the overall risk of a retirement income plan, and create a stable foundation alongside Social Security.

But pensions can also create challenges that are easy to overlook.

Many pensions don't increase with inflation, spousal protection can come at a significant cost, and most importantly for your tax strategy, pension payments are generally taxable income.

That last point can dramatically change your ability to pay little or even no federal income tax during retirement.

In this episode, you'll learn:

• Why pension income can change your Ideal Number
• How a pension interacts with your standard deduction
• Why pension income can make divorcing the IRS more difficult
• How pension income differs from Social Security for tax-planning purposes
• Why some pension recipients may want $0 in their tax-deferred bucket
• How Roth accounts can become especially important for pension recipients
• How the Roth TSP can help military and federal employees prepare for retirement
• When converting Traditional TSP or IRA assets to Roth may make sense
• Why pension planning should begin well before retirement
• How to determine whether your pension could prevent you from completely divorcing the IRS

The key is understanding how much guaranteed taxable income you'll already have before deciding how much money belongs in tax-deferred accounts.

If your pension equals or exceeds your standard deduction, your Ideal Number may be $0 in your tax-deferred bucket if your goal is to get as close as possible to divorcing the IRS.

That doesn't mean you're out of options. It means your strategy may need to change.

By understanding your pension, your Social Security benefits, your tax-deferred savings, and your Roth opportunities, you can build a plan designed to minimize the taxes you and your heirs may ultimately pay.

Want to find your Ideal Number?

Visit divorce-the-irs.com and use the free calculator, which factors in pension benefits to help determine how much you should currently have in tax-deferred retirement accounts.

And stay tuned for the next episode, where we'll explore strategies and potential benefits for Americans living and working overseas, including expats and remote workers.

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