Greeting! I hope that this finds you well and enjoying life.
A tax dollar not paid is a dollar in your pocket. Here are some tips that may assist you in trimming your tax bill in retirement.
Give yourself options with the types of investment retirement accounts you own. Having a taxable account, a traditional IRA and Roth IRA often provide for the greatest tax flexibility later in life. For example, each year you could pull just enough taxable income from a traditional IRA to avoid bumping into a higher bracket and then use tax free income from the Roth IRA to provide for further needs.
Consider which type of accounts you actually hold different asset classes in tax wise. For instance, make sure interest generators are held in tax shelters like IRA’s or annuities to avoid paying unnecessary taxes if you don’t need the interest generated for income purposes. On the other hand, you may want to hold individual stocks that you bought for growth outside of tax shelters as they are subject to preferential long term capital gains tax rates.
Monitor your income in retirement to make sure you avoid going into a higher bracket if you are receiving income you don’t need and thereby triggering a higher Medicare premium. It’s important to understand that Medicare premiums are “means based” and therefore the greater your tax bracket the greater your premium.
Rather than taking the mandatory required minimum distribution starting by age seventy-three, you can make a direct contribution to charity to avoid declaring the RMD as income.
Take a hard look at when you plan to begin to take social security. If you don’t need it taking it may drive you into a higher tax bracket and reduce the benefit you would have had at a later date as well.
Owners of assets with capital gains should consider in certain circumstances gifting the asset to a family member in a lower tax bracket in order to reduce the tax on the sale of the asset.
Don’t hesitate to call if you have questions about the above or feel that I can help in any way.
Thought for the day…… Always behave like a duck-keep calm and unruffled on the surface but paddle like the dickens underneath.
Jeff Christian CFP, CRPC
I find that the great thing in this world is not so much where we stand as in what direction we are moving. To reach the port of heaven, we must sail sometimes with the wind and sometimes against it – but we must sail, and not drift, nor lie at anchor.
Oliver Wendell Holmes