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Tax Strategies during Retirement

US Dollars Rolled

It has been said that nothing in this world is certain besides death and taxes. We can’t avoid either one; however, we can extend the quality of our lives and reduce the amount of taxes we’re obligated to pay with tax strategies for retirement.

Having the maximum amount of control over your tax burdens will require some astute tax planning, early on in your retirement plan strategy. Knowing your tax laws, understanding your tax situations, knowing when to withdraw money and how to establish tax deferred accounts, being well-informed on tax strategies for retirement and retirement tax saving strategies…will all help you to reduce taxes in retirement.

Want a carefree retirement? Then join us as we talk about retirement tax planning strategies that will help you keep more of the money you’ve earned.

Using Tax Strategies for Retirement Confidence

If you’re under the impression that taxes will be a thing of the past when you retire, you’re not alone.

60% of American workers do not have a good understanding of how they will be taxed during retirement, and 46% of retirees had no idea how significantly taxes would impact their retirement income. Additionally, 24% of retirees say they’ve paid thousands more in taxes during retirement than they’d expected[1].

If Social Security will be your sole source of retirement income, taxation will not be a concern. But who can fund the retirement of their dreams on Social Security alone?

You might have a 401(k) or DB (defined benefit) plan as well, meaning you’ll be receiving what the government calls “combined income.” And just like that, up to 85% of your Social Security benefits may become taxable.

That’s just one of the tax traps seniors might find themselves in.

For now, you might just be focused on making maximum tax-free contributions to your 401(k)…to save tax money in the present. But what else can you be doing to maximize access to YOUR money in the future? What plans do you have for withdrawal during retirement? And what tax consequences do those plans have?

Let’s find out.

Social Security

Your SSI benefits may or may not be taxable. It all depends upon your provisional income.

Your Social Security income will not be taxed if your net provisional earnings total less than $25K per tax year ($32K if married and filing jointly). Provisional earnings are calculated by adding all net income from interest, wages, pensions, dividends…plus 50% of your social security benefits.

You can work to stay beneath that threshold to protect your SSI benefits from taxation, but there’s more. You can also invest in the types of accounts that are not included in that provisional income calculation. Those types of accounts include Roth IRAs, annuities and municipal bonds—all things that should be included in your retirement plan strategy, starting now.

And there’s more…

Where you retire matters. Social Security income is subject to both federal and state taxes, but only 13 states tax your benefits. Those states include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. The tax code in each state varies, and there are some exemptions, so before packing your bags, do some research on your state.

You can make an annual donation of up to $100K directly from your traditional IRA to a charity, after you’re at least 70.5 years old, without being taxed. This is known as a Qualified Charitable Distribution, and it will keep the amount of the donation from being counted with your adjusted gross income, and may be just what’s needed to keep your provisional income below the threshold where SSI is taxed.

You’ll also want to have a Roth IRA in place. You can withdraw from these accounts tax-free, to cover expenses, and those withdrawals will not count as part of your provisional income.

Deferred-income annuities is also be helpful. Take the QLAC (Qualified Longevity Annuity Contract) for instance. If you transfer up to 25% of your 401(k) or IRA balance (or up to $130K) into a QLAC, you may reduce your taxable income. Disbursement, in the form of annual payouts, must start by 85 years of age, and those disbursements will then be included in your provisional income. But that won’t apply if your cash is disbursed from the QLAC before then.

Finally, keep a close eye on interest-bearing accounts that compound interest year-over-year and could potentially put you over the threshold for SSI taxation. If you’re flirting with a provisional income overage, simply transfer funds from those investments to secure accounts that won’t generate that level of interest.

Roth IRA

When you’re part of the workforce and earning your maximum, 401(k) accounts and IRAs make sense because contributions are made before payroll taxes are deducted. However, the fairytale ends when retirement payouts from those accounts are fully taxed.

A Roth IRA is different in that contributions are made with taxed money; but growth is not taxed and neither are disbursements.

Moving your money from a 401(k) or traditional IRA to a Roth IRA subjects that money to taxation; however, the tax benefits that come with a Roth IRA are likely to make it worthwhile…and they’ll come at a time when you need your money the most.

So how and when to get that pre-tax 401(k) or traditional IRA money into a Roth IRA so you can take advantage of both optimal tax situations? All at once is usually a bad idea, because a large amount transferred equals a large tax bill and a higher tax bracket. Smaller, strategic conversions with the goal of minimizing tax obligations will be your best bet.

Tax Classifications

In order to maximize your tax savings, different types of funds should be included across all types of investments.

For instance, because your Roth IRA will be compounding free of tax, it should be the star of your portfolio. Make this the nucleus of your retirement plan, to have the greatest level of access to your money without taxation. Then other funds, accounts and long-term investments can be managed to reduce tax obligations while allowing you to take full advantage of their earning power.


We’ve already covered making charitable donations to reduce provisional income, but there’s more.

Always remember to log charitable contributions, so you can take advantage of all tax deductions. And think into the future, as well, when you might need big deductions to maintain your tax-exempt status, but won’t have the income to make those donations.

You can pre-fund donations. Meaning you give now, but don’t deduct until after retirement.


If you have cash at your disposal, withdrawals are not subject to taxation. This doesn’t mean that you should rely on savings alone for your retirement strategy. What it does mean is that cash should never be overlooked as part of your overall plan. This includes savings accounts, trusts and liquid assets.

Putting Tax Strategies for Retirement to Work for You

No one likes to pay taxes. We all want to keep as much of our hard-earned money as we can…now and into the future. At The Senior Life, our hope is that the retirement tax strategies we’ve listed here will start you thinking about tax-free money strategies and all the ways you can fund the retirement of your dreams.

We’re here to help.

Have questions? Contact The Senior Life today.

Need help? Find out why you should work with a financial advisor during a turbulent market.

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