[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]It is quite safe to say that taxes can be hard on the working class’s budgets, but it can also be quite the hit for retirees as well. For those that are planning their retirement, you may be interested in implementing strategies to have different streams of incomes that will not be subject to taxes in the future during retirement.
You don’t need additional worries during your later years to be on such things as cutting your budget more than expected to pay taxes on your income when your cash flow is limited as is.
Below are some options that you can look into:
- Also Read: 4 Signs That Taking Early Retirement Might Not Be the Right Move for You
- Also Read: Why the FERS Supplement Remains One of the Best-Kept Secrets in Federal Retirement
- Also Read: How Roth IRA Impacts Your Retirement Planning: Find Out Here
More often than not, retirees are told that it is best to focus on investing in options that have low-risk factors. This is why many are guided into investing in bonds instead of stock options. If that is something you are thinking about, you may wish to consider municipal bonds. Why? Because the interest payouts you get will not be liable to taxes.
So what are municipal bonds? These are offered by different localities, cities, and states. The interests that are gained on these bonds are not subject to federal income taxes. Another bonus is if you purchase municipal bonds that are from the state you reside in, you do not need to pay state and city taxes on them either.
Another option is if you have health insurance with a high deductible, you could qualify to contribute to an HSA (health savings account). A big positive on this kind of account is that the money will never expire, and you can carry over the value every year for medical costs you need to cover. However, you can also take any of the amounts that you do not use and invest it for an increase in value.
Money contributed to the HSA will be tax-free, along with any interests you gain on your HSA investments. On top of that, withdrawals from this account are not liable to tax in your retirement years to cover copays and deductibles for your healthcare.
Another option for tax-free income during retirement is if you have a whole life insurance policy (also known as permanent life insurance). A significant difference between a term life policy and a whole life policy is that the latter generates a value of money throughout time. If you decide to make a partial or full withdrawal, you can avoid paying taxes up to the value of what you put into the policy.
The last option isn’t always the case, but Social Security benefits can be tax-free at times. These payments are taxed federally, but if Social Security is your only source of income during retirement, you should be able to get an exemption from being taxed.
You are not liable to federal taxes on your Social Security payments if your provisional income falls under $25,000 for those that are single and $34,000 for those that do their taxes jointly. Your provisional income is made up of half of your S.S. benefits along with any income you receive outside of that.
Also, there are 37 states in the U.S. that do not hold Social Security benefits liable to taxes. If you live in one of these states, you can also avoid state taxes on your benefits. Now, if you reside in a state that does tax S.S. benefits, if you are receiving a low income, you will probably be eligible for an exemption as long you do not live in Vermont, West Virgine, Minnesota, and North Dakota.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”37089″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]