How To Lower Taxes Once You Retire - Slimmer Payments

How To Lower Taxes Once You Retire

Some people mistakenly believe that once you stop work, your tax obligations also cease. Nothing could be further from the truth. However, there are ways to lower taxes once you retire, so you can pay less, and enjoy more of what you may have saved for retirement.

1. Keep your money in a Roth savings account

It’s important to save money for retirement so you have income to supplement your Social Security benefits. But not all savings plans are created equal, and if you’re concerned about taxes in retirement, then it pays to keep your money in a Roth IRA or Roth 401(k). With a Roth savings account, the withdrawals you take in retirement will be yours to enjoy tax-free.

2. Try to retire to a state with no state income tax

State such as Florida and Nevada are extremely popular retirement destinations, and it is not just for the year-round sunshine. Both states have no state income tax. Alaska, South Dakota, Texas, Washington, and Wyoming, also have no state income taxes.

3. Move to a state that doesn’t tax Social Security benefits

Similarly, not every state taxes Social Security benefits. There are 13 states that tax benefits. They are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Keep in mind, though, that some of these states offer a relatively low cost of living, so you may need to weigh those savings against your desire to lower your tax burden.

4. Invest in municipal bonds

Bonds are a great investment for retirees because they’re relatively stable and generally pay interest reliably. But unfortunately, the interest income you receive from your bond investments is subject to taxes — unless you invest in municipal bonds. Municipal bond interest is always exempt from federal taxes, and if you buy bonds issued by your home state, you’ll avoid state and local taxes, as well. That means you’ll get to keep all of that interest income for yourself to either use for expenses or reinvest.

What do you think of these retirement tax saving tips? Are there other ways to lower taxes once you retire, that you would like to share?

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