Three Steps To Retiring With Lower Tax Liability
We all look forward to that day where we can clock out for the last time, and go home without having to hit the snooze button the next morning to report for work. Retirement is a top goal of a large majority of the working population, but getting there is becoming increasingly more difficult. The amount of savings needed to retire comfortably is at an all-time high and retiring without having to pay a large chunk of what you’ve been able to save to Uncle Sam can be a tall order. However, with the right amount of planning you can develop a plan that meets your financial needs.
To reduce the amount you owe in taxes while retired, take a look at these steps to retiring with a lower tax liability:
- Pick a plan that allows you to make tax free withdrawals in retirement. Popular choices include ROTH IRA’s and your company’s ROTH 401(k) plan. If you are able to work until your full retirement age, withdrawals from these accounts can be done without paying taxes. (Note: Some penalties may apply if you don’t end up working until retirement age.)
- When deciding what type of securities to invest in, consider the tax implications that go along with the profit made. Make choices that eliminate or limit the amount of taxes that you will incur on the gains made from your investments.
- If your retirement plans include relocating, pick a state with a lower tax rate. Residents of several states pay no state taxes, but before packing your bags make sure the savings isn’t outweighed by other factors such as a higher cost of living.
Other things you can do to lower your tax liability include making charitable contributions, making annual monetary gifts to loved ones, and waiting to take distributions from your retirement accounts until you are at retirement age. It is never too early to start planning for your future, and retirement is a big part of that future. The plan you put in place today can provide financial stability and security in your later years. You can also take steps to protect your estate through proper estate and retirement planning, and this can give you the peace of mind you need to retire without the stress uncertain finances may cause.