Chris Scalese Taxes In Retirement

Throughout your life, you receive tax deductions for any money you contribute to your retirement accounts. The problem is that according to the law, you have to take the money out starting at around age 70½. This is taxable income, so you will have to pay taxes on it. However, there are ways that you can ease your tax burden.

Continue to Work

Often, if you continue to work, you may be able to put off taking out the required minimum distribution (RMD). There are a few qualifying rules for this, but it is possible that the RMDs can be pushed off until you stop working. 

In addition, if you have an IRA and the 401k plan allows for rollovers, you can transfer this IRA into your 401k before you turn 70, which delays the RMD requirement.

It is important to note that you should not plan your retirement at the end of any given year. Whatever year you retire is when the RMD will kick in. This means that you will pay taxes for the year. By waiting until the first of the following year, you can put off the taxes.

Give to Charities

Another option is to use your RMD for charitable giving. As long as the donation goes directly from the IRA to the charity, it will not count as taxable income. This is known as a Qualified Charitable Distribution (QCD), and it is limited to $100,000 per year. If you have charities that you are involved in, including a church or school, this is a great way to lower your taxes.

Lower Your Income

Your income is what determines how much income tax you are required to pay on social security and how much your Medicare premiums will be. By lowering your income, you may be able to reduce or eliminate this tax. In addition, you can use tax bracket management to fill up the lower tax brackets with your IRA early. This way, the RMDs won’t bump you into a higher tax bracket.