4 Practical Ways to Lower Taxes When You Retire

Retired couple doing taxes

You can only be sure of two things in life, death and taxes. Fortunately, you could lower your tax obligations during retirement with getting in trouble with the IRS. From gifting stocks to making smart withdrawals, below are four common ways to reduce your taxes in your retirement.

Trade Up Your Traditional IRA with a Roth IRA

Although you’d still need to pay taxes when you convert from a traditional IRA to a Roth IRA, which is entirely tax-free, it’s more ideal to save money now and make tax-free withdrawals later on when you retire, instead of paying taxes right from the start and fro withdrawals later on, explains a financial advisor specialist for retirement in Utah. You also won’t have to deal with withdrawal limits.

Make Smart and Timely Withdrawals from your Retirement Accounts

Aside from knowing the basic rules, such as not making withdrawals before age 59.5 or else face hefty penalty fees, you could likewise withdraw from specific accounts in a manner that would reduce your taxes. For example, you might want to withdraw in a particular year when you want to donate to a charitable organization or when you need money for costly healthcare bills.

Lower Social Security Taxes by Limiting Income Sources from your other Retirement Plans

As per IRS guidelines, 50% up to 85% of your Social Security benefits yearly could be taxed when ½ of your income from benefits and other income sources is $25,000 or more for individual filers and $32,000 more for joint filers. With this in mind, try limiting retirement income from your other income sources when you collect your Social Security benefits.

Donate Appreciated Stocks

While making donations to charity during retirement would lower taxes, if you’re looking for a more significant tax break, donate appreciated stocks instead. Because appreciated stocks are not money, the recipient/investor of your donation could write off the stock’s full market value and won’t be slapped with capital gains tax.

Although you still have to deal with taxes even in your retirement, you don’t necessarily need to pay more. Being liquid or having cash on hand while enjoying retirement is crucial, so you need to look for ways, such as the suggestions above to lower your income taxes, that could help you make your money last as long as possible. When in doubt, work with a financial advisor that specializes in retirement planning to determine the best strategy for you.