Retirement taxes and long-term tax planning, in general, can be a challenge for anyone who wants to make sure their golden years are financially secure. The primary factor at play in retirement planning is a person's tax bracket. In our younger, high-earning years, we are almost always in a higher tax bracket than after we retire and have only a pension and possibly social security income to support our lifestyle.
Here are a few of the key ways that practically anyone can minimize their amount of tax they pay during retirement:
If you are in the lowest tax bracket after retirement, you will pay little or no tax on long-term capital gains and dividends. This is one of the most powerful ways for people with significant investment income to avoid retirement taxes at various levels.
Many people still have mortgage payments to make even after they retire, and often have to withdraw from savings and other asset accounts to meet the monthly payment. If at all possible, try to pay your mortgage off completely before you stop working. This is a "back-door" way to minimize taxes because you won't have to pay tax penalties for early withdrawal on retirement accounts if you have no huge mortgage payment to meet.
While you're still working, be sure to take advantage of one or more Roth-like retirement arrangements, whereby you are able to pay no tax on post-retirement qualified withdrawals. Anyone can set up a Roth IRA, and most working folks can create a Roth 401k by speaking with their tax professional.
The more sources of diverse types of income you have in retirement, the better. As long as you can stay in the lowest tax bracket possible, you'll be able to take advantage of Roth accounts, long-term capital gains, dividend income, and other income sources. And if you're able to keep all your social security income from being taxed, that's an added bonus.
Amid all the frenzied planning for retirement taxes, most soon-to-be-retirees forget that the single biggest way to minimize their tax bill is by reducing expenses. If your living expenses are low, you will not be as likely to have to withdraw a significant amount of money from your various retirement accounts. That translates into a low-income bracket, and thus a lower tax bill.
It's true that most retirees think about cutting their monthly expenses, but it takes a competent professional to help them turn this desire into reality. Perhaps the most important component of effective retirement planning is getting professional help as soon as possible, at least several years before your retirement day arrives.
Call the Lone Star Tax Group at (806) 300-8903, email them directly at info@lonestartaxgroup.com, or visit their website at http://www.lonestartaxgroup.com/ for more information. When you need a seasoned tax professional for help with retirement taxes or any part of your financial life, turn to the professional team at Lone Star Tax Group
Lone Star Tax Group