Trim Your Retirement Taxes

Author: AB Staff

Trim Your Retirement Taxes

Editor Pick 2 Finances

Retirement is supposed to be about relaxing, spending more time with loved ones, or even going on a few adventures. Retirement is not supposed to be all about paying taxes. However, there’s a pretty good chance you’ll be taxed on Social Security benefits, and everything that comes out of your traditional IRAs.

Before you panic, know that it’s easier to control your tax bill in retirement than it is while you’re working. There are a few easy steps you can take to trim your retirement taxes so you have more money to spend on the things you love.

  • Maximize Your Tax Bracket – Try and estimate your taxes at the end of the year to see if you have any wiggle room in your tax bracket. If your income is below the top boundary of your bracket, try taking money out of your IRA to get you to the top. This way, by the time you reach age 70 or 71, your minimum distributions aren’t as large as they might otherwise be – saving you money. Be sure to consider what tax bracket you might be in when you’re over the age of 70, too.
  • Take Care with Withdrawals – Don’t withdraw from your retirement accounts too much or too early. If you have a taxable account, take money out of the taxable account first, rather than out of your Roth IRA or a tax-deferred account. This will help delay your income taxes as long as possible, saving you money. Depending on what kind of investments you have, withdrawals from taxable accounts can be taxed at 20%.
  • Think About Asset Location – You might be facing a much higher tax bill than necessary if you have your investments in the wrong places. Usually, your investments that generate the lowest tax bills should be in your taxable accounts, while your investments that have high taxes should be in tax-deferred or IRA accounts. Don’t move things around too much, though, because then you could face fees and transaction costs.
  • Consider a Roth Conversion – Moving some IRA money into a Roth IRA may help lower your tax bills by lowering future required minimum distributions, depending on your particular situation.
  • Combine Income and Deductions – Try pulling deductions into one year to improve the odds of you being able to itemize. This way, the next year, you’ll have so much money in your account you won’t have to take in as much. Additionally, maintaining a position in the 15% tax bracket means any of your capital gains will have a 0% tax rate.

These are just a few of the steps you can take to lower your retirement taxes. Want to learn more about taxes and retirement? Use some of these resources:

Have you tried any of these tips for reducing your retirement taxes? Share your experience below. Check out our other articles to learn more about taxes and other retirement issues.