Brooklynn Chandler Willy | Strategies for Managing Your Tax Burden in Retirement

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Strategies for Managing Your Tax Burden in Retirement

by Brooklynn Chandler Willy | May 8, 2023 | Brooklynn Chandler Willy, Retirement Planning

Retirement is a time of relaxation and enjoyment after years of hard work, but it can also be a time of nancial uncertainty. One of the critical concerns of retirees is managing their taxes, which can signicantly impact their income and overall nancial security. Fortunately, there are several strategies that retirees can use to manage their tax burden and maximize their revenue.

Plan Ahead

The rst and most important strategy for minimizing your tax burden in retirement is to plan. This means carefully considering your income sources, such as Social Security, pensions, and investments, and developing a tax-ecient withdrawal plan. It’s also

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essential to keep up-to-date with changes in tax laws and regulations and adjust your plan accordingly.

Consider Roth Conversions

Converting traditional IRA or 401(k) funds to a Roth account can be an intelligent move for retirees looking to manage their tax burden. Roth accounts are funded with after-tax dollars, meaning retirement withdrawal is tax-free. However, the conversion process can trigger a tax bill, so it’s essential to consider your tax situation carefully and consult with a nancial advisor before making the switch.

Utilize Tax-Advantaged Accounts

Retirees could use tax-advantaged accounts, such as 401(k)s, IRAs, and Health Savings Accounts (HSAs), to manage their tax burden. Contributions to these accounts are taxdeductible or made with pre-tax dollars, which means that retirees can reduce their taxable income and lower their tax bill. Additionally, qualied withdrawals from these accounts are taxed lower than regular income.

Manage Your Social Security Benets

Despite the signicant source of income that Social Security provides for many retirees, it can still trigger higher taxes if your combined income exceeds a certain threshold. This can aect the amount of money you can collect from these benets.

Donate to Charity

Charitable donations can be a great way to reduce your tax bill in retirement. Donating to a qualied charitable organization can lower your taxable income and reduce your tax bill. Additionally, retirees aged 70 ½ or older can make tax-free charitable contributions directly from their IRA through a Qualied Charitable Distribution (QCD).

Manage Your Investment Portfolio

Managing your investment portfolio is also a great strategy for managing your tax burden in retirement. For example, retirees can use tax-loss harvesting to oset gains in their portfolio and lower their tax bill. Additionally, retirees can invest in tax-ecient funds designed to manage tax liabilities.

Consider State Taxes

Retirees should also consider state taxes when planning their retirement nances. Some states have high income or property taxes, which can signicantly impact retirees’ nances. Consider moving to a state with lower taxes or adjusting your nancial plan accordingly.

Minimizing your tax burden in retirement requires careful planning and strategy. By considering your income sources, utilizing tax-advantaged accounts, managing your Social Security benets, donating to charity, managing your investment portfolio, and evaluating

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state taxes, you can reduce your tax bill and maximize your income in retirement. Working with a nancial advisor who can help you develop a customized plan that considers your unique nancial situation and retirement goals is essential.

Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.  Please contact us if you wish to have formal written advice on this matter.

Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benets and higher Medicare premiums. Be sure to consult with a qualied tax advisor before making any decisions regarding your IRA.

Insurance products, tax preparation services, and estate planning services are oered through Texas Insurance Advisory, Texas Tax Advisory, and Texas Estate Advisory, respectively, all of which also do business as Texas Financial Advisory.  Insurance products, tax preparation, and estate planning are oered separate from investment advisory services.  Neither Queen B Advisors nor Texas Financial Advisory oer tax or legal advice.

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