Retirement Tax Planning: 5-Step Tax-Smart Retirement Income Plan

Have you started your Retirement Tax Planning already? If not, you may be deterred from a safe and tension-free retirement. So, act now.

Retirement Tax Planning can help you last your retirement savings longer. It may also help you lower your taxes after retirement. But readers often find it complicated. That’s why we see people focusing on investment and alternative incomes. They rarely treat Retirement Tax Planning with as much importance.

I hope it’s not too late yet. You can start today by taking a few basic steps. This five-step retirement planning guide may help you.

These common strategies help all individuals alike. There are no unique trends or exceptions that can make the strategy futile. Generally, the retirement tax planning software yields the most accurate results.

However, individuals often feel confused if they have compacted case backgrounds. I often felt the same. That’s why I consulted a retirement tax planning advisor near me.

5-Step Tax-Smart Retirement Income Plan

If you have surplus savings, tax payment is no big deal. However, 20% of US citizens above 50 have almost zero retirement savings. And that’s where the problem lies.

You may live off your social security returns or use up your pension. However, we must not forget that most US citizens do not have employer-aided pension provisions.

When you start siphoning from your investment assets, you harm the scope of your future returns.

Again, returns are vital for older adults without any substantial savings. Without it, they can live out their savings.

Hence, we concluded that your asset utilization post-retirement is crucial. But why?

The reason is simple. Some investments attract less taxes than others. The same goes for some accounts, too. Hence, it would help if you liquidated your assets in a tax-efficient way. Remember, your goal is to elongate the lifetime of your savings.

With this objective, here are the intelligent tax strategies you can consider:

1. Tactfully handling social security benefits and Returns

One of the prime factors of Retirement Tax Planning is how you handle your social security benefits. Let’s take a few typical cases, for instance.

Instance 1

You may have a stable and fixed income source while you fully retire. So, you won’t need social security, even at 65. Hence, you can naturally delay receiving your social security benefits till the age of 70.

It will help you earn additional benefits over the cut you could get at 65. But the most exciting part is something else. You will have no payable tax liabilities over the additional earnings these five years.

What’s the status when you get it at 70?

As you get the benefits after 70, they will be entirely tax-free. So, identify the rebated taxes as your incremental earnings in your retirement tax planning spreadsheet.

You can also count the additional savings as a part of your gross earnings at 50 to 85%. To dig in more, use your retirement tax planning calculator. The percentage, however, depends on the scope of your other earnings.

Instance 2

How much is your provisional income? Is it lower than $25000? These parameters clearly define whether you can get tax rebates or not. But do you know what your provisional income is?

It is that taxable portion of your social security earnings.

Here’s a catch. If you are single with a provisional income of $25000 or lower, your social security benefits are tax-free. The same goes for married couples filing jointly. However, their joint social security benefits must be lower than $ 32,000.

Instance 3

There are other ways to avoid taxing retirement earnings, too. Let’s say you are single and earn between $25000 to $34000. In that case, only 50% of your social security is taxable. For married couples, the earnings should be between $34000 and $44000.

Wait, you are divorced? I forgot that provision. But don’t worry. You will have a provision even when you are separated. If you file separately, 85% of your earnings are gross income by default.

In conclusion, the taxable portion of your social security earnings depends on all other incomes. That’s why regularly monitoring your provisional earnings after retirement is essential.

Control your taxable income

Your retirement tax planning advisor will dictate the means to do that easily. But if he doesn’t do that, you may try other means to control your taxable income:

Step 1: The first step is diminishing the gross adjusted income. I visited a center for retirement tax planning near me. I learned that I could invest in 401(k) and IRAs to reduce AGI.

Step 2: I can also reduce selling my securities after retirement to check the limit of provisional income. Now, you may have financial considerations. In that case, you will have to increase the sales of your securities. But try avoiding where you can. As a result, your income won’t push you over the 50 to 85% inclusion mark.

Step 3: Do you have a Roth IRA? It’s the best option at the moment. If you need to withdraw, then do that from the Roth Account. After retirement, Roth IRAs are tax-free. When your payable tax of social securities is calculated, the Roth IRA withdrawals are exempted.

2. Optimizing your investment portfolio

Portfolio optimization can save you from paying taxes, too. But do you know why your investment portfolio is susceptible to high taxation? I’ll tell you why.

In your investment portfolio, all capital gains incur taxes. The dividends are taxable, too. In the same way, interest incomes and RMDs are taxable.

Worried? Don’t be. There are ways to reduce your tax liabilities. Firstly, you can simply try the trick of holding your investments for a long time. Hence, you will qualify for reduced capital gains rates. You can also deposit your retirement earnings into Roth IRAs.

You may invest in other tax-efficient investment options too. As an outcome, your taxable income would reduce every year.

3. Try a CD laddering strategy now

CDs are one of the prime sources of retirement earnings. Almost all US retirees have CD profiles in their Retirement Portfolio.

That’s why you should not have many issues creating a suitable CD laddering strategy.

You can also frame other similar laddering investments. But do you know how it’s done? You simply need to buy bonds or CDs with staged maturity periods. But why?

Staging your maturity dates is the most essential part of your CD ladder. You must reinvest the matured amount promptly. And carry out the same strategy in a cycle.

It is one of the smart retirement income options.

The financeteam of your next-door retirement and tax planning advisor may not disclose it to you. But you can always read my other articles on CD laddering.

4. Using deferred annuities smartly

Are you investing your funds in tax-deferred schemes after retirement? If yes, congrats! You can make big-time tax savings. But people who said NO are in a grey area.

Any tax-deferred account only imposes taxes on the investment gains once you get your share of distributions.

You can also avoid large withdrawals from your annuity. Instead, make repetitive and partial withdrawals. Above all, it will help you stay well within low tax brackets.

5. Do you know how much is enough after your retirement?

The current earnings and expenses list decides how much you need to earn before retirement. You also need an expense plan. Otherwise, you may outlive your savings.

Some people find planning quite tricky, but no severe permutations and combinations are involved.

Considering the increasing inflation rate, you must first fathom your Retirement Savings Gap. After that, you must decide what expenses are redundant and what are necessary.

This is crucial for framing your retirement investment strategies.

Now, you can keep two to three surplus expenditures. Beyond that, anything will evoke the risk of outliving your savings. For example, you can do away with frequent dining out. But you must keep paying for your car and home maintenance.

Frequently Asked Question!!! (FAQs):

People ask specific questions about Retirement Tax Planning. But these questions are most repetitive.

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