Tax-Advantaged Retirement Strategies

Heading into retirement with confidence is easier if your strategy includes steps to help minimize taxes. Even though your income is likely to decline, you still could be subject to high taxes if you’re not careful.

CHECK YOUR NUMBERS

Recent changes to the tax code could affect your retirement strategy. New regulations around tax brackets, allowable deductions, estate taxes and other issues may change your tax liability significantly.

First, here’s a thorough, easy to digest guide to key tax changes. It covers a range of tax topics related to estate, income, capital gains, and long-term care. Then, as you begin to see your retirement tax picture, there are a variety of strategies that could help keep your IRS bills to a minimum.

DO YOUR (GEOGRAPHY) HOMEWORK

Tax rates vary widely state to state. Some states like Wyoming, Alaska and South Dakota offer retirees the benefits of no income or estate taxes, and low property and sales taxes.1  If you live in a highly-taxed state — we’re looking at you, Connecticut and Kansas — you might want to consider relocating.2 You might even follow the lead of retirees who opt to move abroad for low-cost, tax-advantaged lifestyles in countries like Costa Rica and Mexico.

TRIM YOUR EXPENSES

Spend less, keep more — it’s a prescription for less stress and more confidence in retirement. But frugality has tax benefits too. Making modest, rather than major withdrawals from retirement accounts may keep you in a lower tax bracket. Here are ways to cut expenses at any age.

INVESTIGATE TAX-ADVANTAGED RETIREMENT INCOME SOURCES

Social Security benefits will only take you so far in retirement. To help fill the income gap, look into tax-advantaged sources of guaranteed income:

  • Annuities3 provide a guaranteed payout for life, and your initial investment grows tax-deferred until the gains are withdrawn. By the time you receive annuity payments, you could be in a lower tax bracket. Savvy retirees may even use part of their IRA to purchase a single-premium annuity to help create more available income, while helping to reduce the required minimum distribution (RMD). More on RMDs below.
  • Whole life insurance4 provides a tax-advantaged death benefit along with guaranteed cash value growth5 — earnings you can use to supplement your retirement income6 — with tax-advantaged loans that can be taken against the policy.7

POTENTIALLY SAVE ON YOUR TAX LIABILITY

With certain retirement plans, like IRAs, you have to withdraw a required minimum distribution (RMD) annually starting at age 70 and a half. In some cases, up to $100,000 a year of your RMD may be income tax-favored if you transfer the money directly to charity. It can be a way to do good while doing well on your taxes.

Check out these additional ideas on retiring with confidence and consider consulting with a financial professional to about learn more tax strategies during retirement.

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2020-109314 Exp. 10/2022