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Five Tax Moves Retirees Should Consider Before Dec. 31

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November 8, 2023 •  Emily Hicks Law, PLLC
Want to save money on your taxes or implement better tax strategies? Now through the end of the year is the time to think about it.

Retirement marks a significant transition, bringing about unique financial opportunities and challenges. In this article, we explore five strategic financial moves for retirees to optimize their financial well-being during this crucial phase.

  1. Roth Conversions 'In the Valley'
    The retirement period, aptly referred to as 'the valley,' occurs between retirement and the initiation of income streams from Social Security and required minimum distributions (RMDs). By retiring early and delaying Social Security benefits, retirees can capitalize on this time to move money from pre-tax retirement accounts into Roth IRA accounts. This strategic move allows them to pay taxes at their current rate, potentially lower than future rates. Collaborating with financial professionals is recommended to evaluate the viability of this strategy.
  2. Realizing Capital Gains
    For retirees with substantial unrealized gains in their stock portfolios, strategically selling winning stocks during a tax valley in retirement can be advantageous. Capital gains tax brackets offer varying rates, with those in the 10% or 12% income tax bracket paying 0% in federal capital gains tax. Leveraging this information, retirees can optimize their capital gains strategy to minimize tax implications. Consultation with tax professionals is crucial to tailor this strategy to individual circumstances.
  3. Evaluate Medicare Thresholds
    Retirees should be aware of income-related monthly adjustment amounts (IRMAA) impacting Medicare Part B coverage costs. Crossing certain income thresholds can significantly increase premiums. Planning for IRMAA involves managing gross income two years prior to the premium calculation. Staying below adjustment thresholds is essential to mitigate Medicare premium costs. Professional advice can help retirees navigate these complexities and optimize their Medicare coverage.
  4. Take RMDs and Fund Retirement Accounts
    Required minimum distributions (RMDs) are mandatory, but retirees can still influence their taxable income by contributing to retirement accounts. Even in retirement, contributing to retirement accounts, often through post-retirement consulting work, can lower taxable income. Aligning RMD strategies with contributions to retirement accounts allows retirees to navigate tax obligations effectively.
  5. Consider Qualified Charitable Distributions (QCDs)
    Charitable giving holds a special place in retirement planning. For retirees aged 70½ or older, utilizing qualified charitable distributions (QCDs) from IRAs can offer tax advantages. Directly giving from an IRA helps reduce gross income, potentially lowering Medicare premiums. This strategy allows retirees to align their philanthropic goals with tax-efficient financial planning. Personalizing these decisions based on individual circumstances is crucial.

In conclusion, navigating the financial landscape in retirement requires a strategic approach. From leveraging Roth conversions during the retirement valley to optimizing capital gains, evaluating Medicare thresholds, managing RMDs, and considering QCDs for charitable giving, retirees can make informed decisions to secure their financial future. Collaboration with financial professionals ensures that these strategies align with individual goals, creating a tailored and effective retirement financial plan.

Reference: Kiplinger, (October 5, 2023), Evan Beach: Five Tax Moves Retirees Should Consider Before Dec. 31

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