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Expert details the biggest tax mistakes people make in retirement

Tim Speiss, a partner at EisnerAmper, shares some of the biggest mistakes people make with taxes when it comes to their retirement.

Video Transcript

RACHELLE AKUFFO: Welcome back to Yahoo Finance, everyone. So how clear are you about your retirement plan and the tax implications you'll face if you made those choices today? Well, as part of our retirement segment brought to you by Fidelity Investments, Tim Speiss, partner at EisnerAmper, joins me now to discuss. So, Tim, what are some of the biggest tax mistakes and the misconceptions that people have when they retire?

TIM SPEISS: Well, first off, I would say not funding enough. Secondly, investment asset diversification is key. A lot of planned participants in that arena probably are not taking advantage of all the investment education tools in the context of proper asset allocation, understanding their own risk, understanding how accumulations inside of plans and a tax deferred environment can really provide a lot of benefits.

So I would say that's some of the comments as well. I would also say that what's interesting is that as we have an older workforce and a younger workforce, the idea of mobility in the context of being able to transfer plan balances if you change jobs, that also is to be considered as well. We're aware of people not always doing that, leaving plan balances behind. I don't think that's a very common experience. But certainly in this very mobile environment, that's something else to consider.

RACHELLE AKUFFO: And you do raise a great point, especially considering the great resignation-- a lot of people perhaps not focused on what they're leaving behind in some of these retirement accounts. Now, as you mentioned, I mean, half of older US adults are now retired according to the Pew Research Center. Now, many retired early due to COVID. If you retired last year, perhaps got some of these COVID benefits and things like that, what should be on your tax checklist?

TIM SPEISS: Well, first off, if you've retired or left your job, I would say some of the items mentioned around cash flow management, investment advisory, we've also seen that population migrate to different jobs that maybe are even sometimes very dissimilar from what they were doing before. And then, even if they become self-employed, continuing to fund retirement plans-- very critical to do that.

Also, considering health care, accessing health care-- there's still a lot of group plans if, as you're saying, there are persons that become either independent contractors or are not able to get into, say, a traditional corporate plan. So I would say those are some of the considerations as well. The other items that we've seen is just making sure that from a lifestyle perspective, that's considered as well.

We've seen across the United States people relocating to different states, being aware of tax rules and laws in those states is very important. And we've seen a lot of that over the past two years.

RACHELLE AKUFFO: And obviously, if you planned on retiring, and then COVID hit, and then you have inflation worsening-- so obviously, your money not going, perhaps, as far as you planned or hoped-- should you hold off on retirement or is there a way to, perhaps, limit some of the impacts on your retirement holdings?

TIM SPEISS: Rachelle, I think you're absolutely correct. And that's what I was talking about earlier. And so this is now a good segue. There are opportunities, of course, even in a part time or flex time environment right now, than there probably ever was in the history of US employment. I might be overstating that. But the ability to be mobile, the ability to work from home, the ability to spend a few days of the week in the office and then out, the American society really has never viewed that or experienced that as a traditional work style or work environment.

And now, that's created a tremendous opportunity for employees who are able to do that and want to do that and where companies want to hire them. These are people with very good skills. They want to work. Many of them highly educated, they're just looking for a different way to work.

And so we see that continuing as well. Many firms, our peer firms and many firms in the financial services space, have done that as well, as we all know.

RACHELLE AKUFFO: So then how should you come up with your retirement plan, say, in your 30s and 40s versus if you're right up against retirement time now in your 60s?

TIM SPEISS: Right. Starting to accumulate assets is key, because you have the time value of money on your side. And you also have the ability if you're contributing to a tax deferred plan, a Koegh plan, a 401(k) plan-- and by the way, the amounts that can be contributed to these funds are not small. A Keogh plan if you're self-employed-- changing track for a little bit-- is up to $58,000. A 401(k) plan, by the way, prematch, is almost $21,000 at $20,500.

So I think for younger people, saving as much as you can, getting the tax benefit, which, by the way, decreases the cost of the contribution itself, and then also starting on an investment plan. When you're younger, you can afford to take a lot more risks. Your asset allocation model should probably be skewed more toward equities, not so much fixed income. As you become older, that becomes a different paradigm-- for example, someone who's nearing retirement a few years before, if they're properly advised should probably be changing their allocation toward equities, more toward fixed income, and those other types of investment fields.

And then finally, I would say this is an unprecedented time right now because there's been so much that has occurred in the US economy and around the world that really have made a lot of the traditional thought processes very different. You look at what the Federal Reserve is doing, Fed chair of Cleveland yesterday-- excuse me, Monday, making additional announcements about rate increases. Chairman Powell is already on the record as saying that there would be four rate increases this year-- a lot of things occurring and people really need to be paying attention to it. But I would say for the younger worker, saving, becoming slightly more aggressive, and being educated about asset accumulation models and asset allocation models.

RACHELLE AKUFFO: There you have it-- lots of great advice. We do appreciate your time today, Tim Speiss there, partner at EisnerAmper. Thank you so much.