Ways to Minimize Income Tax in Retirement Another tax day is over.

Hopefully everyone filed their taxes on time and sent in what they owe to the Internal Revenue Service. Taxes are a fact of life when you have a full-time job but your tax liability will probably chan!e "uite a bit after you retire. If you are still wor#in! you are probably hopin! your taxes will decrease after you retire. That$s probably true but you still need to ta#e control of your tax situation and plan to minimi%e your tax liability in retirement. &hen you stop wor#in! your income will most li#ely decrease because you won$t have income from your re!ular job anymore. Retirees !enerally have many sources of income and they all need to be monitored carefully so you can avoid payin! hi!h taxes. Here$s a loo# at what you can do now to minimi%e your taxes after you retire. Reduce your expenses. How can reducin! your expenses help with your taxes' If you don$t spend a lot of money every month you won$t have to withdraw as much from your retirement fund. (y #eepin! your expenses moderate you will be able to stay under the )* percent tax brac#et and ta#e advanta!e of many tax brea#s. +or married couples filin! jointly that$s ,-. /00 after your deductions and personal exemptions in 10)2. Pay off your mortgage before retiring. 3ne way to minimi%e your monthly expenses is to pay off your mort!a!e before retirement. 4our mort!a!e is usually your bi!!est monthly bill and if you can !et rid of that you$ll have much more flexibility in retirement. It$s too bad that more and more people are carryin! a mort!a!e into retirement. It$s more difficult to minimi%e tax if you need to withdraw a lar!e amount to pay the monthly mort!a!e. Minimize tax on your Social Security benefit. 5id you #now that your Social Security income is taxed based on your combined income' 67ombined income is your adjusted !ross income plus nontaxable interest plus half of your Social Security benefits.8 If you file as married jointly and your combined income is below ,.1 000 you won$t have to pay any tax on your Social Security benefit. (ut as your income increases you will pay more and more tax on your Social Security benefit. This is another reason to #eep your retirement expenses low9 It will help you minimi%e tax on your Social Security benefit. Dividend income and long term capital gains. :ualified dividend income is taxed at %ero percent )* percent or 10 percent dependin! on your tax brac#et. If you can stay under the )* percent tax brac#et your dividend income won$t be taxed. ;on!-term capital !ains are also taxed at the same rate as dividends. Rot! IR" and Rot! #$%&'(. 4our retirement funds in a Roth IRA or Roth 20)6#8 won$t be taxed if your withdrawals are "ualified. <enerally if you are over *=> and the contributions were made more than five years a!o the withdrawal will be "ualified. 7hec# the IRS rule or tal# with your tax advisor to ma#e sure. Roth accounts are a !reat way to diversify your post-retirement income so we all need to invest in these accounts. Traditional IR" and #$%&'( distributions. &ithdrawals from your traditional IRA 6deductible8 and 20)6#8 are fully taxable. These retirement accounts helped lower your tax bill in your wor#in! years but they will increase your tax liability once you start ta#in! distributions.

Diversify your after retirement income. As you can see it$s important to diversify your afterretirement income. Retirees can have income from Social Security pensions rentals taxable bro#era!e accounts tax-free Roth accounts savin! accounts bonds and more. These incomes can be fully taxed taxed at the lon!-term capital !ains rate partially taxed 6Social Security benefit8 or not taxed at all. ?eepin! your taxable income under the )* percent tax brac#et will help you minimi%e the amount of tax you pay for years to come. <ive yourself more options by savin! and investin! in all these accounts while you are still wor#in!. 3f course there are other ways to lower your taxable income such as donatin! to charity and ta#in! some investment losses. However #eepin! your expenses low after retirement is the #ey to minimi%in! taxes. If your annual expenses are low you won$t have to withdraw a lot from the fully taxable accounts. &or# with your tax accountant now to ma#e sure you don$t pay @ncle Sam more than you have to when you are retired.