Greetings I trust that this will find you well and enjoying life.
Tax planning in retirement is as important as portfolio or income planning. Tax planning should be done year round, but we want to pay particular attention as we approach year end to make sure we don’t miss an opportunity. Here are a couple of ideas for retirees to consider that make sense to me.
If you intend to withdraw a larger than normal amount from your IRA next year for a capital expense such as buying an automobile or major traveling expense, consider withdrawing part of it this year and wait and withdraw the remainder next. In this way you spread the tax liability over two years and minimize the chances of the large IRA withdrawal pushing you into a higher tax bracket or moving you into a higher tier for Medicare part B premiums.
A Roth IRA is a powerful asset to own in retirement for a number of reasons. An understanding of why is important and I’ll write about it in detail next week. The point about Roth as applies to year end tax planning is, it’s a good idea to examine your income thus far for the year and consider where your income level is in the tax brackets. Then you may want to convert a portion of your IRA to a Roth IRA, up to the amount just less than the amount that would push you into a higher bracket. Yes you pay taxes now on the conversion, however gain access to the benefits of owning a Roth.
If you have questions about any of the above or others relating to retirement please call.
Jeff Christian CFP, CRPC