Many baby boomers and retirees do not know about the ways taxes can impact their retirement income, according to study released Thursday by the Bankers Life Center for a Secure Retirement.
In fact, respondents had a better understanding of how lottery winnings are taxed. Ninety-four percent knew how lottery winnings are taxed but only 39 percent knew the taxes on Social Security benefits and even fewer knew about taxes on traditional IRAs (35 percent), Roth IRAs (31 percent) and 401(k)s (29 percent).
The survey of 1,000 Americans ages 50 and older, with an annual household income of between $25,000 and $75,000, showed that only 38 percent work with a tax preparer.
Fifty-seven percent did not know that required minimum distributions start at 70.5 years old. The majority of respondents did not know they could withdraw money from a traditional IRA without penalty for such things as college expenses, home purchases or medical expenses.
Fifty-six percent did not know that there is a higher deduction if a person is blind; 68 percent did not know that a person 65 years or older gets a higher standard deduction; and 90 percent did not know they might be able to claim their parents as dependents even if they live outside their home.
“Many people focus on building their retirement savings without considering the role of taxes once they are retired,” says Scott Goldberg, president of Bankers Life.