10 Brilliant Ways To Reduce Your Taxes in Retirement

10 Brilliant Ways To Reduce Your Taxes in Retirement

John Csiszar  Mon, May 29, 2023

Though taxes might not be the first thing you think of when it comes to how you want to spend money in retirement, planning strategically can mean more funds for the things you love. That's why when you're budgeting for retirement, it's important to factor in how much of your money will be going to the IRS each year.

Reducing your taxes after retirement can help you reduce the savings you need to retire in your state. See how you can maximize your retirement savings.

1. Pick Your Retirement State Carefully

If possible, try to retire in one of the most tax-friendly states for retirees. Not all states are created equal when it comes to taxes in retirement. Nine states have no income tax at all, and Tennessee and New Hampshire only tax interest and dividends. 

On the other end of the spectrum, California has a top tax bracket of 13.3%, meaning the Golden State isn't topping the list of retirement-friendly places to spend your golden years.  You almost certainly have other factors to consider when deciding where you want to spend your retirement years aside from which places are tax-friendly states for retirees, but it could be an important factor.

2. Contribute To or Convert To Roth Accounts

If you haven't finished working yet, consider whether you should be contributing to a pretax retirement account -- like a traditional IRA or 401(k) -- or an after-tax retirement account like a Roth IRA or 401(k). If you expect to have more taxable income once you retire -- whether that's from dividends, Social Security payments or selling investments -- you can reduce your taxes by contributing to a Roth account so the distributions won't be taxed.

Or, if you expect that income tax rates will increase in future years, convert a portion of your retirement savings to a Roth IRA. You'll pay taxes in the year of the conversion, but the later withdrawals from the Roth account will be tax-free.

3. Roll Over From a Traditional IRA to an HAS

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/10-brilliant-ways-reduce-taxes-130058921.html

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