Experienced in first position commercial mortgages, Barry Kornfeld leads First Financial Tax Group. With diverse financial experience and acumen, the company’s co-founder, Barry Kornfeld helps individuals establish conservative income strategies to sustain their retirement.
With the guidance of a tax professional, individuals can take the following steps toward reducing income tax during retirement:
Keep income low to avoid social security tax.
At the age of 62, you gain access to social security benefits. Depending on your combined income, which takes into account adjusted gross income, nontaxable interest, and half of your social security benefits, you may be required to pay social security benefit taxes. For couples filing jointly, income must remain below $32,000 to qualify for exemption.
Stay under the 15 percent tax bracket.
In 2015, the 15 percent tax bracket for single filers ranges from $9,225 to $37,450. Married people filing jointly make between $18,450 and $74,900. If you are in or below the 15 percent tax bracket, you may qualify for tax breaks, such as the earned income tax credit, which refunds a portion of taxes to people with low to moderate incomes. In addition, income earned from dividends will not be taxed.
Choose a Roth IRA over a traditional IRA.
A traditional individual retirement account (IRA) helps you save money for retirement without taxing deposits. However, upon withdrawal during retirement, you will be assessed taxes at the present rate. Conversely, a Roth IRA accrues pre-taxed dollars, so you will not have to pay taxes when you make a qualified withdrawal. To qualify, you must be more than 59-and-a-half years of age and have made contributions for more than five years prior.