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In 1991 Billy and Akaisha Kaderli retired at the age of 38. Now, into their 4th decade of this financially independent lifestyle, they invite you to take advantage of their wisdom and experience.

Want to Keep More of Your Money in Retirement?

Five Smart Strategies for Reducing Tax Burdens

Christophe Garcia

As retirement gets closer and closer, one of the biggest questions many people have is: how can I keep more of my hard-earned money? Taxes don’t go away when the paychecks stop, and if you’re not careful, Uncle Sam can take a sizable portion of your retirement income. Thankfully, there are ways to reduce tax burdens, and by planning strategically, you can keep more of your money where it belongs—with you. Let's explore the smart strategies people use to reduce retirement tax burdens and maximize your income.

New Technology for Retirement: The Digital Tools That Keep You on Track

Nowadays many retirees are tapping into new technology for retirement to ensure their golden years stay financially secure. This tech includes sophisticated planning tools that analyze current assets, forecast expenses, and simulate tax scenarios. Some platforms even allow users to create tax-efficient withdrawal plans, so you can identify which accounts to draw from first to reduce taxable income. With digital platforms and AI-powered tools, retirees are finding it easier than ever to create comprehensive, tax-efficient plans tailored to their unique situations. 

These new technologies help track retirement milestones, calculate income needs, and predict future expenses based on health and lifestyle. What’s more, they offer access to a wealth of data to make smarter decisions about retirement savings, investment income, and withdrawals.

Understanding IRMAA Brackets: Keep More by Managing Your Medicare Premiums

If you’re a high-income retiree, Medicare isn’t just a straightforward expense; it’s one where your income matters. IRMAA brackets—or Income-Related Monthly Adjustment Amounts—are additional Medicare premiums for those with higher incomes, potentially adding a lot of money to your monthly healthcare costs. If you’re not careful, a few thousand dollars in extra income can place you in a higher bracket, significantly increasing your out-of-pocket expenses for Medicare.  

To avoid or manage IRMAA surcharges, retirees need a thoughtful approach to taxable income. This can include strategies like carefully managing retirement account withdrawals, strategically timing Social Security benefits, or using Roth conversions during low-income years to reduce future required minimum distributions (RMDs). With a well-executed tax plan, you can potentially stay below certain IRMAA thresholds, saving money on Medicare premiums and keeping more of your retirement income intact.

Leveraging Roth Accounts: Tax-Free Withdrawals in Retirement

For those looking to minimize taxes on retirement income, Roth IRAs and Roth 401(k)s can be invaluable. Unlike traditional retirement accounts, Roth accounts allow for tax-free withdrawals in retirement, since contributions were taxed upfront. This can be a game-changer when managing tax burdens, as every dollar withdrawn from a Roth account won’t increase your taxable income.

By withdrawing strategically from both traditional and Roth accounts, you can manage income levels more effectively, potentially lowering overall tax liability. Converting some funds from traditional accounts to Roth accounts during lower-income years can also be a smart move. The upfront tax cost may be worth it in the long run, allowing you to enjoy tax-free growth and withdrawals when you need them most.

Timing Social Security: Maximize Benefits While Minimizing Taxes

Timing is everything when it comes to Social Security. The age at which you start claiming benefits not only affects the amount you receive but can also impact your tax situation. Delaying Social Security until full retirement age or even age 70 can maximize your monthly benefit, and in some cases, it may also help you manage your taxable income more effectively.

Here’s how it works: by delaying Social Security, you may avoid having to take significant withdrawals from retirement accounts early on, which could keep you in a lower tax bracket. For instance, you could spend down taxable accounts first, allowing retirement accounts to continue growing tax-deferred. This approach can help you defer or reduce RMDs later in retirement, thereby lowering your taxable income and keeping more of your money.

Managing Investment Income: Tax-Efficient Withdrawals and Asset Location

Investment income can be a major source of cash flow in retirement, but it can also lead to high tax burdens if not managed correctly. One way to control the tax impact of investment income is through careful asset location—placing certain types of investments in tax-advantaged accounts and others in taxable accounts.

This way, income from more tax-efficient investments, like qualified dividends or long-term capital gains, can be realized in taxable accounts. Income from bonds or high-dividend stocks can then be sheltered in tax-deferred accounts.

Another aspect of managing investment income is the timing of capital gains. For instance, realizing gains in low-income years or harvesting losses in high-income years can help balance your taxable income. By staying mindful of where your assets are held and when you recognize income, you can keep tax burdens lower and enjoy more income in retirement.  

 

 

 

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About the Authors

 
Billy and Akaisha Kaderli are recognized retirement experts and internationally published authors on topics of finance, medical tourism and world travel. With the wealth of information they share on their award winning website RetireEarlyLifestyle.com, they have been helping people achieve their own retirement dreams since 1991. They wrote the popular books, The Adventurer’s Guide to Early Retirement and Your Retirement Dream IS Possible available on their website bookstore or on Amazon.com.

contact Billy and Akaisha at theguide@retireearlylifestyle.com

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