Retirement can bring financial peace of mind, especially if you’re clever with your taxes. Wealthy individuals know how to preserve their funds for the golden days in lawful ways. So, why not learn from them? Here are 10 tried and tested tax-saving strategies to keep your savings working for you.
Maximize Savings with Tax-Deferred Accounts
An investment in accounts like 401(k)s and traditional IRAs offers more than just growth—it defers taxes. Since taxes are delayed until withdrawal, many people end up paying less when their tax bracket is lower, and it stretches their retirement funds even further.
Use Charitable Giving to Reduce Tax Bills
Donating appreciated assets instead of cash will let you sidestep capital gains tax while receiving a deduction on the asset’s full value. Such an approach can help you take care of and minimize your taxable income. Like this, generosity is both impactful and tax-efficient.
Convert to Roth IRAs for Future Tax-Free Income
Roth conversions are here for you to pay taxes now in exchange for tax-free income down the line. Notably, Roth IRAs don’t require minimum distributions, which means retirees gain flexibility while enjoying tax-free withdrawals later. Isn’t it an ideal setup for long-term planning?
Choose Municipal Bonds for Tax-Free Earnings
Municipal bonds that are issued by local governments provide tax-exempt interest income, which is appealing to most people who want steady, low-risk returns. This income is often free from federal and state taxes and creates a valuable tax-free income stream for the years ahead.
Unlock Equity Gains by Downsizing
Downsizing isn’t just practical; it’s a way to tap home equity gains without a major tax hit. For example, selling a primary home can exclude up to $250,000 in gains ($500,000 for couples). It’s a good trick to access funds tax-free, and you can use it to upgrade your lifestyle as a senior.
Delay RMDs with Qualified Longevity Annuity Contracts
Keeping a part of your retirement funds in a QLAC delivers predictable income for later years and can make tax planning easier. Qualified Longevity Annuity Contracts (QLACs) aid you in deferring required minimum distributions—a good method to also reduce taxable income now.
Set Aside for Healthcare Costs with an HSA
Build a Health Savings Account (HSA) during your working years. HSA offers triple benefits: contributions are deductible, growth is tax-free, and withdrawals for medical bills are tax-exempt. So, there you have it: a fund you can draw from to avoid taxes on health expenses.
Offset Gains Through Tax-Loss Harvesting
Sell your investments at a loss and balance out your profits—another trick to lower taxes you might owe on profitable assets. Known as tax-loss harvesting, this strategy helps retirees keep their overall bill down while balancing gains with losses and preserving the value of their portfolio.
Gift Assets to Family in a Tax-Savvy Way
Gift your assets to family members in lower tax brackets. It’s a popular hack among the wealthy to reduce estate taxes over time. Utilizing the annual gift tax exclusion will make way for gradual wealth transfer without additional taxes. Plus, you are helping your loved ones financially, too!
Set Up a Donor-Advised Fund for Long-Term Giving
Donor-advised funds are here to help you claim immediate tax deductions and allocate funds to charities gradually. This setup is flexible, as you can adjust donations over time, receive upfront tax benefits, and turn your charitable intentions into a practical, cost-saving legacy.
