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Striking a Balance Between Tax and Income

March 16, 2023

In retirement, it’s not about receiving as much income as possible. During your working years, it might be, but when you’re the one paying yourself, it’s important not to turn your hard-earned savings into a large pile of income that’s taxed at a higher tax bracket. It is important to strike a balance between maximizing your income and minimizing your tax burden. Here are a few tips for achieving this balance.

Traditional IRAs and 401(k)s are taxed at your income level. When it comes to providing yourself with income from these sources, remember that you owe taxes on whatever you withdraw! Planning out your withdrawals to provide you with only what you need each year can help minimize your tax burden while maintaining your lifestyle.

Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars, meaning you already pay taxes in the year you make contributions, not when you withdraw. Qualified withdrawals from a Roth IRA are tax-free, so by funding Roth IRAs during your working years, you can reduce your tax burden and increase your income later.

In retirement, you’ll likely have other sources of income and may have the ability to control the amount of taxable income you receive. For example, you could choose to take Social Security benefits later to receive a larger monthly benefit (and potentially pay a lower tax rate on those benefits). You could also consider taking income from taxable accounts before tax-deferred accounts, as the latter may be taxed at a higher rate in retirement.

In addition, there are several tax credits and deductions available to seniors, including the credit for the elderly or the disabled and the medical expense deduction. By taking advantage of these credits and deductions, you can reduce your overall tax burden.

Overall, striking a balance between income and tax in retirement requires careful planning and consideration of the various options available to you. By understanding your income needs, tax liability, and the various retirement accounts and credits available, you can develop a strategy that allows you to protect the longevity of your retirement savings while providing yourself with the income you need.


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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.