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How to Trim Your Tax Bill After You Retire: 5 Retirement Tax Tips That Really Pay Off

Estimated Reading Time: 4 minutes

Whether you’re just starting your career, about to retire, or already sipping mojitos on a beach somewhere, you’re going to get taxed in retirement.

It might be a bit of a bitter pill to swallow, but, there are multiple ways to keep your tax bill in check, if not trim it down substantially.

So keep on reading to learn about the top five retirement tax tips that can truly shake up your savings game.

1. Keep an Eye of Your Social Security and Other Income Combinations

Things are usually never as simple as they may seem at first sight.

For example, if you worked for someone else or had net profits come in from self-employment —or freelancing—, you’re most likely eligible to receive social security benefits during retirement. 

In this case, your benefits might be taxable, according to how much income you (and if you’re married and filed a joint return) have from other sources.

Traditionally, between 50% and 85% of your annual benefit is taxable. And, when the sum of half of your social security income plus income from other sources is more than $25,000.

This number jumps to $32,000, if you’re married and filed a joint return.

In order to reduce the probability of paying tax on your social security benefits, a great tip would be limiting your income from other retirement plans.

Besides, try to decrease any sort of wages that you get from a part-time job to ensure that you stay within the income limit.

2. Open an HSA

This tip works magic for folks with high-deductible health insurance plans.

If your plan meets the IRS’s guidelines of what’s considered a high-deductible plan, then you’ll be allowed to open a health savings account (HSA).

In addition, qualifying for health insurance tax subsidies in retirement can erase a big chunk out of your tax bill.

3. Maximize Your Retirement Tax Benefits With Roth IRA

Making contributions to a Roth IRA account can only be done using after-tax dollars, so you aren’t given the option of deducing these contributions from your income.

This allows the Roth IRA to give you the best of both worlds once you retire by allowing withdrawals to be completely tax-free.

By contributing to a Roth IRA for future use, or drawing money from it in retirement, your future tax consequences will tank.

4. Prepare for Minimum Distributions

It’s essential to know that most retirement plans (except for Roth IRA plans) are subject to required minimum distributions (RMD).

In short, once you turn 70.5 years old, you must meet the annual required minimum distributions or be hit with a penalty from the IRS.

Make sure to avoid this penalty by checking out the IRS’ RMD worksheets to calculate your minimum payment.

5. Invest in Municipal Bonds

Municipal bonds are usually tax-exempt, so you won’t own federal tax (and maybe even state tax) on the income you get.

It’s a great addition if they fit in your overall investment plans. However, they do come with a drawback and that is getting included to your social security for taxing purposes. 

Ready to Shed That Unnecessary Tax-Weight?

Now that you know the top five retirement tax tips, you’re ready to make the best out of your retirement funds.

However, with shifting tax laws and regulation, make sure that you’re up-to-date with the latest news and financial tips by checking out our main page and self-improvement category!

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