Social Security: 4 Reasons Tax Season Is the ‘Perfect Time’ To Optimize Retirement Accounts
Written by
Vance Cariaga
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Many Americans spend tax season shuffling frenetically through financial documents and tax forms with a mixture of hope and dread hoping they get things right and maybe wind up with a refund, and fearing that the opposite will happen. But tax season also presents an opportunity to review your retirement plans and strategies because you have so much financial info at your fingertips.
Jared Friedman, a certified financial planner and partner at New Jersey-based Redwood Financial Planning, told CNBC that “it’s the perfect time” to begin thinking ahead retirement in general and Social Security in particular. That’s especially true if you are nearing retirement age, but it’s a good strategy no matter how old you are.
Here are four reasons tax season is the perfect time to optimize your retirement accounts.
Ready Access to Financial Information
One of the main steps in preparing your tax returns is gathering all of your financial information from the previous year, including bank statements, investment and retirement plan documents, and earnings documents such as W2s and 1099s. All of this data can give you a clear picture of your financial situation and let you know how well prepared you are for retirement.
You Can Review Your Social Security Statement
Technically, you can review your Social Security statement any time of year. But tax season might be the one time of the year that you think about your yearly income and how it will impact your future Social Security payments.
You can access your Social Security statement by setting up a my Social Security account. It will provide a breakdown of your yearly earnings record and your expected benefit based on your retirement age and other factors. It’s a good idea to review all the information to make sure it is correct. If you see something that doesn’t look right, contact the Social Security Administration.
“Your Social Security calculation is updated with your earnings every year after you file your taxes. This is the best time to catch any mistakes if there is an error in your calculation,” Crystal McKeon, a CFP and chief compliance officer at Houston-based TSA Wealth Management, told CNBC.
You Can Also Review Your Retirement Plans
Another important step to take during tax season is to look at your 401(k) and other retirement plans to see if you are on the right track for a comfortable retirement. If you haven’t done so already, this is a good time to max out your retirement contributions for the year.
You Can Put Your Refund Toward Retirement Savings
If you do get a refund this tax season, one of the best things you can do with it is to put it toward retirement savings. Because IRAs and similar plans have contribution limits, you might have to put the refund into a high-yield savings account or long-term CD dedicated to retirement savings.
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