7 Year-End Tax Moves For Retirees, #220
Tax planning—and anything related to taxes, in general—isn’t most people’s favorite topic. But because we’re getting toward the end of the year, it’s actually a great time to think about tax planning and all of its benefits. In this episode of Retire with Ryan, I’ll share 7 things you should think about that can (and will) help save you money in retirement.
You will want to hear this episode if you are interested in...
[1:17] Check out my course: Retirement Readiness Review
[2:14] Tip #1: Look at your Social Security taxes
[3:57] Tip #2: Watch your income once you go on Medicare
[6:37] Tip #3: Consider doing a Roth conversion
[11:18] Tip #4: Take a close look at required minimum distributions
[13:06] Tip #5: Think about capital gains and losses
[14:09] Tip #6: Pay the correct taxes to the IRS
[15:07] Tip #7: Look at your state’s income tax breaks
Tip #1: Look at your Social Security taxes
Did you know that some individuals can pay zero taxes on their Social Security benefits? The IRS calculates taxation by taking half of your Social Security and adding it to any other earned income in that year (dividends, interest, IRA distributions). If it’s less than $25,000 individual or $35,000 for married filing jointly, you won’t pay any taxes. Listen to hear some ways you can mitigate your tax burden if you go over that threshold.
Tip #2: Watch your income once you go on Medicare
Everyone pays a standard Medicare rate ($174.50 per month in 2024). If your income is over a certain threshold (based on your income two years prior) you’ll pay an additional amount per month, per person. For example, you would pay $244.60 if you make over $103,000 individually or $206,000 for married filing jointly. Remember, if you’re thinking about taking a distribution, realizing a capital gain, etc. it counts as income and will impact what you’re paying down the road.
Tip #3: Consider doing a Roth conversion
Before 1997, everyone saved money in pre-tax accounts. They offer many deductions. However, that money will have to come out and be taxed. If you have significant IRA assets, you can consider paying the tax now instead of leaving that to a future beneficiary. If tax rates may rise or your kids have higher incomes, it may make sense to pay some taxes now and move the money to a Roth account. Secondly, we only have two more years at our current tax rates. Once that ends, taxes will likely rise for everyone.
Tip #4: Take a close look at required minimum distributions
When you turn 73, you have to start taking required minimum distributions from retirement accounts. You can wait until April 1st of the following year with a special exception. However, if you wait, you have to satisfy both distributions by the end of that year. You can do tax planning to determine when is best to start taking distributions.
Tip #5: Think about capital gains and losses
If you’re in a lower income bracket this year, it may make sense to realize some capital gains and pay the taxes. If you have losses on your investments, it can be a good idea to capitalize on those losses. Meaning—you can write up to $3,000 of a loss on your tax return. Greater losses can be used to offset gains in future years.
Tip #6: Pay the correct taxes to the IRS
The goal shouldn't be paying so much in taxes so that you get a large refund. That’s just giving the IRS an interest-free loan. You also don’t want to owe a lot of money. Why? If you owe more than $1,000, you’ll have to pay a tax penalty. So set up the proper withholding from the start.
Tip #7: Look at your states income tax breaks
The most tax-friendly states are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Connecticut has some of the highest taxes in the country. But they offer retirees tax breaks if their income is under a certain level. If your income is under $100,000 (married filing jointly) you may pay very little state income taxes.
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