If it’s time to retire and you haven’t started already to plan for taxes then you need to get started now. Even if retirement is still a ways off, you should always be thinking ahead. In any case, one of the most common question people have regarding retirement is how do I lower my tax bill? There are several things you can do that will help you keep your tax bill down after you retire.
One of your best bets is to open a Roth IRA. While these retirement accounts are created with after tax money, they also grow tax-free. Yes, you will have less expendable income when you deposit after-tax money into a Roth, but you won’t have to pay taxes on the gains you make when it comes time to withdraw the money. Another option is to simply convert some of your traditional IRA savings into a Roth IRA.
With all retirement accounts, at some point you will have to start taking money out, which is your required minimal distribution. However, if you don’t really need that money you can save on taxes by simply donating it to a good cause. In fact, you can donate up to $100,000 every year from a traditional IRA to charity.
You should also pay close attention to where you invest your money and make sure that you are putting it into the right kind of account. Having your income in the right place can help reduce your tax bill.
Lastly, although not an option for every taxpayer, you could move to a state with a lower tax rate. Florida, Texas and Nevada are some of the best options for those looking for a lower overall tax bill in retirement. However, there are many expenses to consider in retirement other than just your tax bill, so make this decision wisely, based on all the relevant factors.