Apex Education: Taxes In Retirement

On the latest episode of Apex education, Ryan shares some of his thoughts and experiences on best practices for reducing taxes in retirement.

As people transition into retirement one of the most common areas that they neglect to prepare for is how they can best reduce their overall tax liability throughout their golden years.

Ryan explains that once someone enters retirement, it is a whole new ballgame in terms of how their money is taxed throughout the years. Most people will receive Social Security in retirement. These payments from Social Security can be taxed in one of three ways; the first way, is that none of their Social Security benefit will be subject to taxation. The second scenario would be that 50% of their benefit would be subject to taxation. And the third scenario, would be that 85% of their Social Security benefit would be subject to taxation.

The more income you have in retirement the greater the likelihood that your Social Security benefit would be subject to the 85% rate. So, with that said it is extremely important to reduce your taxable income to the best of your ability.

Not only would you potentially be paying higher taxes on your Social Security, but you could also be paying higher premiums on your Medicare.

In addition to saving money through reduced Social Security and Medicare obligations, there are also strategies to convert qualified dollars to non-qualified dollars or Roth dollars. Qualified monies, such as 401(k)s and IRAs are subject to ordinary income tax. Non-qualified assets and Roth IRA assets are subject to much less taxes or even no taxes as in the case of a Roth.

Ryan has personally used a backdoor Roth strategy to maximize his tax planning. Remember to investigate all options when it comes to your tax strategies in retirement because it could be more important than your rate of return in terms of how it will impact you and your finances.