Q. I heard that after my retirement, my income tax will be lower, is that true? If not, what strategies can help me lower my post-retirement taxes?
A. The sad fact is, after your retirement, while your income maybe lower, your tax deductible items are less too, making it harder to get tax benefits.
Because of the importance of tax, for retirees, the goal should be to maximize after-tax income!
What tools and strategies are available to maximize after-tax retirement income? Below are few popular ones.
1. Max Roth IRA.
Maximize your contribution to Roth IRA each year, if you are still eligible!
Any withdrawal from Roth IRA is tax free, so if you are taking both social security income and Roth IRA income, only your SSI part counts towards your tax.
2. Consider Annuity.
If you purchase an immediate fixed annuity with Roth IRA money, you will have lifetime tax-free income!
Even you use money from your non-IRA account to purchase annuity, you only need to pay tax on the gain, not the entire annuity income, because your principal is after-tax contribution.
3. Make Tax-efficient Asset Allocation.
Even before your retirement, incorporate tax planning into your asset management strategies. For example, you have two accounts: IRA account and individual brokerage account, now you want to invest in some growth stocks and some high dividend stocks, which account should hold these growth stocks and which account should hold the high dividend stocks?
Put the growth stocks in your individual brokerage account and high dividend stocks in your IRA account!
A. The sad fact is, after your retirement, while your income maybe lower, your tax deductible items are less too, making it harder to get tax benefits.
Because of the importance of tax, for retirees, the goal should be to maximize after-tax income!
What tools and strategies are available to maximize after-tax retirement income? Below are few popular ones.
1. Max Roth IRA.
Maximize your contribution to Roth IRA each year, if you are still eligible!
Any withdrawal from Roth IRA is tax free, so if you are taking both social security income and Roth IRA income, only your SSI part counts towards your tax.
2. Consider Annuity.
If you purchase an immediate fixed annuity with Roth IRA money, you will have lifetime tax-free income!
Even you use money from your non-IRA account to purchase annuity, you only need to pay tax on the gain, not the entire annuity income, because your principal is after-tax contribution.
3. Make Tax-efficient Asset Allocation.
Even before your retirement, incorporate tax planning into your asset management strategies. For example, you have two accounts: IRA account and individual brokerage account, now you want to invest in some growth stocks and some high dividend stocks, which account should hold these growth stocks and which account should hold the high dividend stocks?
Put the growth stocks in your individual brokerage account and high dividend stocks in your IRA account!
RSS Feed
