6 ways to lower your tax bill for retirement


It’s that time again… TAX TIME! Just kidding. But no matter what time of year it is, it’s never too early to begin planning your tax strategies for now and in retirement. The more informed you are about taxes, the better you can navigate your financial future.

Keep in mind that everyone has a different financial situation and not all of these tips will apply to everyone in retirement. Simply Money Advisors recommends working with a tax professional and trusted financial planner for the best guidance with your tax plan. Before you meet with a tax professional, make sure to do your own research on tax regulations that could possibly affect you. Here are a few ways you could reduce your tax bill now and later in retirement.

1. Evaluate withdrawal sequencing

Have a 401(k)? A Roth IRA? A taxable investment account? Various retirement and investment accounts have different tax implications. It’s important to understand each of your accounts and what the taxes may look like in retirement.

Depending on your financial situation it may be more beneficial to take funds from certain accounts first. For an example, it may make more sense to take funds from your taxable accounts before your retirement accounts or your 401(k). This is called ‘withdrawal sequencing.’ Work with your tax professional and trusted financial planner to determine which accounts may be best to withdrawal from first.

2. Pay attention to your investment mix

Another important thing your financial planner can help you determine is the best investments to house in your different accounts. Some investments have higher tax implications than others, such as bonds and REITs (real estate investment trusts). By determining the best accounts for these investments, you may prevent a huge unwanted tax bill.

3. Research Social Security tax rules

Social Security is extremely complicated. Understanding your specific situation can be very valuable in retirement. Simply Money Advisors encourages you to make Social Security a part of your personalized financial plan. If you don’t understand what benefits you may receive in retirement this could throw a wrench into your financial plan. Register for your “My Social Security” account on the Social Security Administration’s website to know exactly where you stand. This will give you a baseline for understanding what benefits you will receive in retirement.

Chances are you may end up paying some sort of taxes on your benefits. Approximately half of Americans will have to pay and this number is projected to increase in the years to come. Many retirees ignore this factor and it ends up costing them. By paying attention to your marginal tax rate, you can better protect your money in retirement.

4. Understand all of your deductions

Make sure you’re recording all of your tax deductions. Many people don’t spend the time calculating their possible deductions because they’re unaware of them or they don’t want to take the time to research. You can deduct everything from health insurance premiums to charitable gifts. Work with your financial planner and tax professional to determine what you are eligible to deduct now and in retirement.

5. Consider increasing your generosity

Did you know that you’re able to deduct charitable contributions up to 50% of your adjusted gross income to most charities? Required minimum distributions begin in retirement (from traditional IRA accounts) at age 70 1/2. Some retirees can donate this amount to charity, resulting in a tax benefit. Retirees can also donate appreciated assets from their taxable accounts. Your tax advisor can help guide you and find the best way to donate to your favorite charity and get the highest deduction for your kindness. 

6. Reduce your property tax bill

Property taxes can have a significant impact on your budget and they should be planned for in advance because, in some cases, it could be a very large amount. If you want to reduce your property taxes, check your jurisdiction’s website for errors on your property value that may be inflating your taxes. This record is kept at your county auditor’s office but the website is the best place to check first before taking any action. For example, in Hamilton County, Ohio, this information can be found at hamiltoncountyauditor.org. If you do find errors on your appraisal and you can prove the errors, you may be able to get them adjusted without going through the appeal process.

Also, check your neighbor’s property taxes. This information is public and if your property taxes are significantly more than theirs, it may be time to do some digging. Many people assume that the appraisals are always accurate, but this may not be true. Do your research and make sure all information is accurately recorded.

The Simply Money Point

There are many ways to reduce your tax bill in retirement. It’s important to work with a trusted tax professional (we recommend a Certified Public Accountant) and financial planner (we recommend a Certified Financial Planner) to establish the best plan for your taxes now and in retirement. Every little bit counts when you’re trying to protect your money and make it grow.

We invite you talk with our team about getting actionable steps to help you live the way you want, today and tomorrow.