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change in retirement plan | Raymond James Financial Investment Advisors

Tax Planning During Retirement

Tax Planning During RetirementRetirement income typically comes from savings, an IRA, a 401(K) and Social Security benefits. However, enjoying truly rewarding golden years will prove much easier if you minimize your tax burden. Prudent tax strategies minimize the amount of money that is redirected to Uncle Sam, ensuring you keep as much of your hard-earned money as possible. Let’s take a look at some of the tax planning strategies that set the stage for a truly enjoyable retirement.

Consider the Merits of Health Savings Accounts (If you have a high deductible health plan)

Health savings accounts are not viewed as traditional retirement accounts. However, these accounts have the potential to be quite the effective savings vehicle, as contributions decrease taxable income upward of annual limits, allowing your investments to potentially increase in value without the penalty of taxation.

There are no taxes paid on withdrawals as long as the money is used for medical expenses that qualify. When you hit the age of 65, withdrawing money from a health savings account for purposes outside of medical expenses is taxed similar to regular income.

Some are Going as far as Moving to Avoid High State Taxes

Though it might be hard to believe, the truth is some people are moving to tax-friendly states to avoid taxes. About half a dozen states including the economic hotbeds of Texas, Florida and Washington have zero state income tax. Furthermore, Tennessee and New Hampshire limit taxation to dividends and interest. It is particularly interesting to note states cannot tax residents on retirement benefits earned in another state.

Use a Brokerage Account for Tax-Efficient Investing

Invest through a traditional brokerage account and income generated may only be taxed to a certain extent. Prudent investors use tax-reduction strategies to help maximize tax efficiency. It makes sense to hold investments that have appreciated for longer than a year to utilize long-term capital gains rates.

Many Index mutual funds, exchange-traded funds and tax-managed funds are tax-efficient investment vehicles that minimize taxable distributions. If you are in a comparably high tax bracket, you should give serious consideration to tax-advantaged municipal bonds as their interest is not subject to federal taxes. In fact, if these bonds are issued in your home state, you may not have to pay local or state taxes either.

Alter Your Investment Holdings With Taxes in Mind

Changing the structure of your investment holdings really can minimize your tax burden. As an example, it may be possible to harvest tax losses to offset taxable gains. Capital losses in excess of your total capital gains may be used to offset as much as $3,000 of income. Losses in excess of that may be carried forward to offset future capital gains. Though there are no guarantees that stock dividends will be paid, qualified dividends from publicly traded companies are taxed much more favorably than regular income. This tax rate is either 0%, 15% or 20%. The specific taxation rate hinges on your income level.


Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Holding stocks for the long-term does not insure a profitable outcome. Investing in stocks always involves risk, including the possibility of losing one’s entire investment.

Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Municipal bond interest is no subject to federal income tax but may be subject to AMT, state or local taxes. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Please consult an income tax professional to assess the impact of holding such securities on your tax liability.

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