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5 Ways to Reduce Your Taxes in Retirement

Retirement is a significant milestone in life, one that most begin planning for when they receive their first job. In between dreaming of an RV road trip and hoping for more time with your grandchildren, paying taxes is probably the last thing you want to consider when planning for your retirement. At Bennett CPA, it’s our mission to provide personalized tax services to individuals across Colorado Springs so they can focus on what matters: making plans for their future.

Whether you are planning for your retirement or have already retired, there are a few things you can do to reduce your retirement taxes. While you will no longer be taxed on your income, the funds that you remove from most of your retirement accounts will be. Our knowledgeable team at Bennett CPA understands that paying taxes is the last thing you want to spend your hard-earned retirement funds on. For this reason, we have compiled a list of a few ways we save our retired clients money from being spent on excess taxes.

Open A Roth IRA

If you want to trim your tax bill, opening a Roth IRA is the simplest and most effective way to do so. By investing your retirement money into a Roth account, you will have full access to your funds without the burden of it being taxed. This means that any withdrawals will be worry and tax free. Try opening a Roth IRA account as early on in your career as possible to accumulate plenty of tax-free money to live off of while in retirement.

2. Reduce Expenses

While retirement means that you will be able to skip over paying income tax, it does not make you immune to the taxes that are connected to your expenses. By reducing your expenses before you retire, you will be able to significantly downgrade the amount of taxes you owe when withdrawing money. One major way to do this is by paying off your mortgage before and during retirement, this large investment can lead retirees to spend excess money well after they no longer have an income. By creating a plan to have all major expenses paid off before retirement, you will retain otherwise wasted funds.

3. Manage Money Withdrawals Strategically

If you have a traditional IRA or 401(k), being strategic when you withdrawal funds will play a primary role in how much you owe in taxes. It is advised that if you find yourself in a lower tax bracket, you should take that as an opportunity to withdraw funds from your retirement account. Those funds will not only be taxed less because of your position in the bracket, but they can also be directly placed in a ROTH IRA for safekeeping until you retire.

4. Make Donations From IRA

If you’ve reached the required age to begin pulling money for your traditional IRA, making charitable contributions is a great way to meet the required minimum distribution while avoiding being taxed. Not only will you save yourself money but you will also lend a helping hand to your community.

5. Retire In a Tax-Friendly State

If you are looking to avoid tax altogether, there are some states that offer appealing minimal retirement taxes. While moving to avoid paying taxes is not advised, if you are already looking for a new place to live, you might want to take into consideration each state's tax policy. There are nine states in total that do not tax income of any kind. This means that your retirement funds can be safely withdrawn without being taxed.

Retirement Taxes | Bennett CPA

As you plan for your retirement, taking your taxes into account will not only save you money in the long run, but will also set your dream retirement in place. At Bennett CPA, our core values of clarity, efficiency and simplicity will ensure that as we plan for your retirement, no money-saving opportunities will be missed. Our team has accumulated years of expertise that we will use to develop a personalized tax plan made specifically for you and your retirement needs. Contact us today to get started!