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In most cases, social security benefits aren’t enough for a retiree to live comfortably. So with a combination of retirement plans, social security, and other generated income, you can create a reliable, tax-efficient plan that can help you lead the retirement lifestyle you sought after. 

Your retirement income plan should be strategically structured to reflect income from investments and guaranteed income, like social security, pensions, and fixed annuities. It’s important to remember that these areas of your income plan are often taxed differently. Not keeping this in mind can lead to retirees into higher tax brackets and increased tax liability. If you want to minimize your retirement taxes better, consider a few of these steps. 

Tax Diversification

Though planning for taxes in retirement can be challenging, tax diversification is a fantastic strategy to use in your planning process. A tax diversification strategy requires retirees to be mindful of things like the tax status of assets and the allocation of funds. To determine the tax status of your assets, you’ll need to group them under “taxable,” “tax-deferred,” and “tax-free.” Assets like savings accounts or traditional retirement accounts are usually taxable at ordinary income rates and fall under taxable or tax-deferred. In contrast, Roth IRAs and 529 plans are tax-free. A tax diversification strategy can provide retirees with multiple benefits, like extending your retirement portfolio, and providing the flexibility to draw income from different sources and know how it’ll affect your retirement.

The Right Time for Social Security

The age-old question surrounding social security is “when is the right time to claim?”. Is an early claim detrimental to your funds? Or can waiting on your claim lead to a more significant impact during tax-time? Really, there are benefits to both scenarios. When you wait on your social security claim, it’ll increase the amount you receive each month once you do start collecting. So, the more you receive from social security, you may need to take less from other retirement accounts. Leading other retirement accounts to increase, and potentially face a higher impact at tax-time. On the other end of the spectrum, collecting social security early can reduce your need to withdraw larger amounts later on that would be subject to higher taxes. 

Creating a Withdrawal Strategy 

As previously mentioned, tax-diversification of the assets in your income plan is essential. Once you’ve established your assets’ tax status, you can begin to put together a tax-efficient withdrawal strategy. In other words, understanding the right time to collect funds from your different assets to avoid hefty taxes. As an example, consider that many of your retirement funds are taxable assets. To preserve them, you may want to consider withdrawing from your tax-deferred or tax-free assets first. 

Building a solid retirement plan can be challenging. But keeping these considerations in mind can help you in the long-run.

Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100. Retirement Income Strategies is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.