If you recently retired or are getting close to retirement, one of the most vital tasks that you need to accomplish is to plan your taxes as well as you can because, frankly, your income is going to be reduced greatly during retirement and the less taxes you pay the more you’ll have two pay for other, more important items like food and heat. With that in mind we’ve put together a blog that will give you some excellent advice and tips about tax planning for retirement. While we admit that it might be a little dry, the fact is that it is vitally important and we hope that you will get some value out of it. Enjoy.
If part of your investment portfolio contains after-tax brokerage accounts then be aware that you will have to pay tax on any capital gains and profits that you make when you sell it. If you hold onto your investment for more than a year it will actually be assessed at a different tax rate for long-term capital gains and, if you’re in the 15% tax bracket, these capital gains will amount to zero. You can thus take advantage of this by selling your stock and then buying it back right away to reset your cost basis, reducing your capital gains taxes when you finally do sell at a later time.
Carrying your home mortgage into retirement is, technically speaking, a bad idea. The reason is simple; without a mortgage you will be able to withdraw less money from your tax protected retirement accounts. Indeed, getting rid of as much debt before you retire is an excellent idea for the same reason. Withdrawing money from your retirement accounts that are tax-deferred will have a big impact on your tax liability and, if your taxable income is under a specific amount, you won’t be taxed on your Social Security benefits.
We’ve written a number of blogs about the best states for retirees as far as taxes and cost-of-living. Frankly, some states are much better than others for retirees simply because of the tax bite that they can take out of your income. States like California and New York have some of the highest taxes in the country and so, if you’re keen on keeping more of your retirement money, you may wish to move out of those 2 states and to another that is much more lenient on your taxes.
Keep in mind that, although some states like Alaska, Texas, South Dakota and Florida have no state income taxes, they usually make up for them with other taxes including sales tax, fuel tax and property tax (to name just a few). Make sure that you’re not jumping out of the frying pan and into the fire when you move by moving to another state that has no state income taxes but has ridiculously high taxes on everything else.
If you decided to leave the United States completely and retire in another country you may want to consider establishing your residence in a state that has no state income taxes as, when you’re not there, you won’t be taxed.
Property taxes are also very important to keep in mind before you decide to relocate to another state in order to lower your tax burden. In some states the property taxes are extremely high, including the aforementioned New York and California as well as New Jersey and some others. Other states meanwhile have extremely low property taxes and, even if some other taxes are higher, the overall tax burden may be lower. In other words, before you make any moving plans make sure that you do your due diligence and research as best as you can the tax rules in the state that you plan to move to so that you can compare them to the state that you’re already living in. (And if this has put you in a state of confusion, make sure to ask a professional for help.)
Simply put, we Americans pay more than our fair share of taxes while we are working so, in retirement, it’s a great idea to minimize your tax burden as much as possible. As far as we’re concerned, the less that you have to pay to Uncle Sam the better.
We hope that this quick blog has helped you and giving you some ideas and thoughts about retirement planning. Make sure to come back and check in often as will be presenting more information on retirement, taxes, retirement plans, financial information and a wide array of other tips and advice in the future. We hope to see you then.