Tags: Retirement | income tax | strategies | retirement | planning

5 Best Income Tax Strategies in Retirement Planning

By    |   Thursday, 20 August 2015 02:48 PM

Retiring from the work force doesn't mean you're done dealing with the IRS, since, as personal finance publisher Kiplinger puts it, "Taxes don't stop when your paycheck does."

Here are some income tax-lowering strategies to incorporate into your retirement planning.

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1. Rank your investments. Because "not all investments are taxed alike," wrote Forbes contributor Erik Carter, it's important to recognize which of them — from cash to collectibles to annuities — are the most and least heavily taxed, and which can be shielded from higher taxes using retirement planning.

2. Create a sequence of withdrawals. "The general rule of thumb is for investors to spend from their taxable portfolios before spending from their tax-deferred portfolios (after taking their required minimum distributions)," said Vanguard Investment Counseling & Research.

3. Adjust the order of withdrawals as needed. Don't assume the traditional "withdrawal hierarchy," writes Retirement 2.0 blogger Mary Beth Franklin of Investment News. In some cases, writes Franklin, the taxables-first withdrawal approach "could unintentionally increase a client's overall tax burden, including boosting the portion of Social Security benefits subject to income taxes and triggering higher Medicare premiums when income rises above certain thresholds."

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4. Don't get bumped. Fidelty Investments says, "Avoid having withdrawals bump you into a higher tax bracket" by having a strategy in which you are drawing retirement savings from a combination of tax-delaying accounts (401, 403, 457) and tax-exempt accounts (Roth IRA).

5. Remember Social Security. Keep in mind that the more you withdraw from your savings during retirement, the more of your Social Security income the government will consider taxable — up to 85 percent of it, Dan Ritter wrote at Cheat Sheet.

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Retiring from the work force doesn't mean you're done dealing with the IRS, since, as personal finance publisher Kiplinger puts it, "Taxes don't stop when your paycheck does."
income tax, strategies, retirement, planning
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2015-48-20
Thursday, 20 August 2015 02:48 PM
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