4
Tips about your Tax Situation upon Retirement
One of the biggest financial myths around is that once an
individual retires they will be in a lower tax bracket. To take advantage of
your non-working years, you’ll want to have a sound strategy in place for retirement
income distributions. The vehicles most commonplace are social security
benefits, distributions from pensions, annuities, IRA’s and other retirement
plans, all of which are potentially taxable to you and at rates that can
increase depending on your asset level and filing status.
You should
have an idea of whether or not your retirement income will cause some of your
social security benefits to be taxed. The taxable
portion of your Social Security benefits cannot exceed 85% of your total
benefits, but if you are receiving income from other sources over a minimum amount
then as much as half of your social security
benefits may be taxable. (See your status here: http://www.irs.gov/pub/irs-pdf/fw4v.pdf)
Below are 4 tips to consider when attempting to
decreasing tax obligations in lower years. Remember the total value of your retirement accounts is not as important as the
value of your non-taxable distributions.
(1) If your standard deduction will exceed your taxable income, consider
withdrawing more retirement funds than you need. By accelerating income when
you have a zero or low tax rates, you'll avoid potentially paying more taxes in
a future year.
(2) Consider delaying your Social Security checks. One benefit of
waiting to collect Social Security until you’re older is that your checks will
be larger. With all of the hype around this depleting resource this can be a
risky strategy, but will ultimately grow your check by about 6.25% for every
year you wait, and after all 6.25% of something is more than nothing right?
(3) Take a good look at your portfolio and do what you can
the cost basis of your investments when your income is lower. Low-income years in
retirement are a great time to sell a stock that has appreciated and reinvest
the gain in stock of a similar class. This is because under the current fiscal
freeze, long-term capital gains rate is zero on people whose income puts them in the 15-percent bracket or lower (up to
$36,250 for a single filer and $72,500 for married filing jointly).
(4) Lastly and perhaps a
bit more extreme: Move to a tax-friendly state!
If you’re moving for retirement to be closer to family of fulfill a bucket-list
wish, consider taxes as part of your decision. Alaska, Nevada, and Wyoming are
often identified as states with the most retirement-friendly tax laws. The
worst of the bunch are Ohio, California and New York.
Simone is a registered investment adviser representative.
FINRA CRD: 6143314.
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