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Minimizing Taxes in Retirement

Posted on: May 13th, 2014
retirement savingsFor some, retirement savings may provide a quality of life consistent to their working years. For others, a fixed income and care costs could manifest into debt. Lower taxes during retirement allows for financial flexibility in day-to-day expenses, and preservation of assets for beneficiaries. Some aging Americans must consider the reality that a working retirement will be necessary to cover costs in their senior years. 

According to a new study by the National Institute of Retirement Security, the United States has fallen short on retirement savings. Although Florida is a top retirement destination, our Florida tax attorneys learned through the new survey that the Sunshine State is one of the least prepared states for retirement. (The same results showed for another state our tax lawyers serve: North Carolina.)

To avoid postponing retirement, our tax lawyers provide three ways those retiring in Florida and across the nation can minimize tax during retirement:
  1. Choose a State with Low Taxes. Florida’s weather is not the only benefit attracting seniors. Florida has no state estate tax, inheritance tax, nor individual income tax. When it comes to tax planning, Florida is a superb choice for retirees. For those planning to retire elsewhere, research state tax laws before relocating. If you plan to have two homes until you retire, learn about how you should update your estate plan with properties in multiple states
  2. Required Minimum Distribution investing. If an individual fails to take an RMD, an excise tax may be imposed by the IRS as a penalty. Make certain all deadlines are met to avoid unnecessary taxes. For the most part, RMDs must start at age 70 ½. Discuss investment options with a Certified Financial Planner who may advise investing all or a portion of the RMDs  in a tax-advantageous manner . For example, the RMD schedule increases the amount of distributions as taxpayers age. To avoid drawing more from retirement accounts than is needed, at and after age 59 ½ IRA account owners can take a lump sum or start distributions and invest them in an account that offers tax advantages. This satisfies RMDs, offers tax savings and further wealth accumulation, and prevents heirs from paying tax on appreciation.
  3. Multiple Retirement Assets. Just as Americans shouldn’t rely exclusively on Social Security benefits for retirement, they shouldn’t be dependent on a sole type of asset or account. If time allows before retirement, accumulate multiple retirement assets, including Roth and traditional IRAs. Diversifying assets may help reduce taxes, encourage growth, and preserve assets not only for retirement, but for beneficiaries.
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