The process of creating your retirement, in a physical strategy, is pretty easy. Most people understand the concept of saving money in a savings account or having a retirement plan contribution being automatically deducted from their paycheck. When you retire, there is a significant and sometimes difficult change from being programmed to save money to begin to draw from your savings to provide the income you need in retirement.

The challenge is what you need to know to begin generating income from your savings.  If you participate in a 401K plan, then it all begins with your former employers retirement plan provider.  You need to call them and request information about drawing from your retirement plan.  They can provide all the information you need to get started.  You may want to discuss your options with a financial professional to make sure you understand each option.

If you are going to be drawing from an IRA, then you should call the brokerage firm or bank that holds your accounts.  They will be able to help guide you through the process of completing the necessary paperwork.  If you will be receiving your money from a traditional IRA, Rollover IRA or 401K, you will need to designate a Federal Tax and State Tax withholding amount.  When you worked, the payroll group in your company calculated all your taxes to be withheld from your paycheck.  Now you become responsible for it.  The amount that you have withheld is an estimate based on how much you will be withdrawing from your savings.

So, once you get your retirement income setup through monthly distributions, you begin receiving money similar to a paycheck. It will feel very similar because on a set schedule, you can have the money deposited into your account.  Well, how do know exactly how much you withdrew from the year?  How do you know how much you paid in taxes already?

In January of the following year, you will have a 1099-R prepared and sent to you by either the custodian of your account or the 401K plan provider.  This 1099 will identify the amount of money you withdrew from your retirement account and the amount of taxes you had withheld for both Federal and State Taxes.  While you were working you received a w-2 which reported this information to you and IRS, now you will receive a 1099-R to report this information to the IRS.  The 1009-R will be used similarly to a W-2 to prepare your tax return.

There are many questions when it comes to retirement and to make sure you’re as prepared as possible for transitioning into the next season of your life, it’s important to talk with a professional. We’re here to help you. Contact our team today and let’s talk about your retirement!

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