Retirement Tax Strategies
- Live in a Tax-Friendly State – If you already live in a tax-friendly state, that is a significant plus for you. If you don’t, it might be a smart move to consider. There are seven states without state income taxes, and they are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax just interest and dividends presently, but Tennessee is joining the states with no state income tax soon.
- Reassess Investments – Changing investment holdings in retirement can save on taxes and also preserve principal.
- Avoid or Postpone RMDs – If you are 72 years old or more, you won’t have to pay taxes on required minimum distributions (RMDs) from a traditional IRA if the funds are transferred to a charity. There are stipulations and limitations to this strategy.
- Deferred Annuities – Postpone RMDs and never run out of income during retirement by investing in deferred annuities. You can use a specified retirement account to purchase a qualified longevity annuity contract (QLAC). Funds allocated to a QLAC are exempt from required minimum distribution calculations.
- Strategize Social Security Benefits – If you have other retirement income for when you reach full retirement age, it is a possibility to benefit from delaying receipt of social security benefits until age 70. You can earn additional credits and boost your monthly benefits. You also defer taxes on benefits in this process. Social security benefit tax implications depend on income. Try to use some clever strategies to control the taxable benefits, such as reducing your adjusting gross income (AGI), limit the sale of securities, and make withdrawals from a Roth IRA if you have one.
- Find the Right Financial Advisor – Finding the right financial advisor will ensure that you maximize your tax planning for retirement and have access to the right retirement tax strategies for you.
Avoiding Taxes on IRA Withdrawals
To maximize the amount of income you have in retirement and ensure you are avoiding taxes on IRA withdrawals as much as possible, consider the following strategies:
- Avoid early withdrawals or face penalties.
- Rollover your 401(k) without having taxes withheld.
- Do not forget about required minimum distributions (RMDs).
- Do not receive two or more distributions in a year.
- Start withdrawals before you have to do so.
- Donate to charity.
Tax-Free Retirement
Having specific retirement account savings vehicles, including a Roth 401(k) or Roth 403(b), can give you some tax-free retirement income. For example, in a Roth Individual Retirement Account, growth and withdrawals are tax-free. You pay taxes ahead of time on the contributions made. This can be ideal for someone likely to be in a higher tax bracket in retirement than they are in now. Maximizing contributions to these kinds of retirement accounts help lead you on the right track to having tax-free retirement income sources.
If you are purchasing an annuity to fund any tax-qualified retirement plan (IRA), you should be aware that this tax-deferral feature is available with any investment vehicle and is not unique to an annuity. Carefully consider the features and benefits of the annuity before making the decision to purchase.
The guarantee of the annuity is backed by the claims paying ability of the issuing insurance company.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors Networks LLC nor any of its representatives may give legal or tax advice.
