7 Ways to Minimize Taxes in Retirement

After working hard throughout your life, you deserve to relax and enjoy your retirement. But that doesn’t mean taxes stop. Here are seven tips to help you with tax planning for retirement. Tax-Bracket Planning This can take two forms: long-range and annual tax bracket planning. Long range tax bracket planning has the benefit of showing you how you can rearrange your income sources to have a higher income after taxes. In comparison, annual tax-bracket planning can help you fund the Roth IRA, TraditionalIRA, or 401(k) that will give you the best tax benefit in a given year. It also guides…...
David Roberts
August 15, 2022
Home » Taxes » 7 Ways to Minimize Taxes in Retirement

After working hard throughout your life, you deserve to relax and enjoy your retirement. But that doesn’t mean taxes stop. Here are seven tips to help you with tax planning for retirement.

Tax-Bracket Planning

This can take two forms: long-range and annual tax bracket planning. Long range tax bracket planning has the benefit of showing you how you can rearrange your income sources to have a higher income after taxes. In comparison, annual tax-bracket planning can help you fund the Roth IRA, TraditionalIRA, or 401(k) that will give you the best tax benefit in a given year. It also guides itemized deductions and withdrawals from IRAs to benefit you most.

Roth accounts

Roth IRAs and 401(k)s have the benefit of not being taxable in retirement. If you are wanting to avoid high tax payouts during retirement, Roth accounts are a great account to use for the primary amount of your retirement savings. You can withdraw as much money as you would like out of these accounts without paying taxes, as long as you follow the IRS withdrawal rules.

Tax-free Investments

As you age, it is important to adjust the level of risk you are willing to accept accordingly. Bonds such as municipal bonds (which are not taxed at the federal level) and treasury bonds (which are often exempt from local and state taxes) are some good options to consider when looking at retirement assets.

Timing Your Withdrawals

While some accounts such as IRAs and 401(k)s have required minimum distributions that must be taken out when you reach 72 years old, overall you have a large amount of control over when to withdraw your funds. A year of lower expected income may be a smart time to take a greater taxable distribution from your accounts because it will be taxed less.

Tax Planning for Retirement

Tax planning for retirement can feel tricky and stressful. That’s why using a financial retirement planning service is a great tool. These professionals can help you plan your investments, using tax diversification to ensure that less of your investments are taxed.

Tax-Friendly State

Moving to a different state doesn’t just provide a fun change of scenery. It can also mean more tax-friendly policies on income and social security. There are some states that do not tax your social-security, and others that have no tax on any income. Moving to one of these states could be what you need to enjoy retirement and minimize your taxes.

Saver’s Credit

A saver’s credit can be claimed on retirement accounts contributions equal to $2,000 or less. These credits are worth anywhere from 10-50% of the contribution amount, depending on your income. It can be claimed in addition to the tax deduction on a traditional retirement account contribution as well, making it a great tool to look into.
You may be qualified for the saver’s credit if you are a retirement saver who contributes to a 401(k) or IRA and:
– Is an individual earning up to $34,000
– Is a married couple earning up to $68,000
– Or is a head of household earning up to $51,000

It’s time to take it easy. With these tips, you can minimize taxes paid and give yourself the tax break you deserve.

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