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Five Ways to Slash Income Taxes in Retirement

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Strategize Now To Save More for Later

It can be stressful thinking about how much income tax you will owe in your golden years. But don't worry, because there are simple solutions you can apply now to keep those taxes down and your spirits up. Be sure to consult with a professional financial advisor for help in understanding your own personal situation.

  1. Consider Investing in Tax-Free* Bonds: Try investing in a tax-free "Muni" (Municipal) bond. Many people nearing retirement are in a high income tax bracket, earning the maximum of what they can earn within their salary range. These government-issued long-term securities allow you to invest your disposable income free of federal taxes, and sometimes even free of state and local taxes, too. Because the government backs these bonds, they are a relatively safe investment, so you can keep your blood pressure in check. And if you invest now, when you are ready to retire, you can cash in on these funds. What a relief!
  2. Try Borrowing with Home Equity: Unexpected life events happen. Medical bills can add up, causing you to need more income in retirement than you thought. One strategy you could consider for the future is to reverse your mortgage to use some of your home's equity to pay for these expenses in cash. The vast majority of mortgage interest is tax deductible, so if you're short on liquid assets, you can receive monthly tax-free payments that will match your expenses. The reverse mortgage program is for seniors over age 62 who have paid off their homes or have low mortgage balances. Like most things, however, restrictions do apply, so be sure you pay attention to the fine print and interest rates for reverse mortgages. They can be higher than traditional home mortgages.
  3. Consider Gifting Money to Family Members: Start early by giving yearly gifts to your children. You can gift money to family members while depleting your liquid assets. By giving your little tyke a smaller gift now, rather than a large chunk of money when he graduates from high school, he'll get the opportunity to invest in his education, and you'll be able to lower your estate and taxes.
  4. You May Draw from Your Taxable Accounts First: When you need cash, you can withdraw first from any taxable accounts you have, like individual stocks, bonds, and mutual funds, before you resort to dipping into qualified accounts, such as 401(k)s and IRAs. Thanks to the benefit of tax-deferral, waiting to take from your qualified accounts will allow more time for these assets to grow down the line. Besides the benefits to waiting, remember there are penalties attached to tapping into your qualified accounts too early. Leave the money in these accounts whenever possible, so that both you and your beneficiaries can reap the rewards of tax-deferred income growth.
  5. Putting Your Estate in Order: Cutting taxes in retirement and maximizing your savings also involves ensuring that your beneficiaries' futures are taken care of. Make out a will and possibly a trust as well. Plan ahead! Designating those beneficiaries and determining how your estate will be distributed in advance can help those assets to thrive.

SunTrust is unable to offer tax or legal advice. Please consult with your tax and legal advisors.


*Interest income may be subject to the federal alternative minimum tax. Other state and local taxes may apply.

SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively, “SunTrust”) are not permitted to give legal or tax advice.  While SunTrust can assist clients in the areas of estate and financial planning, only an attorney can draft legal documents, provide legal services and give legal advice.  Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan.  Because it cannot provide legal services or give legal advice, SunTrust’s services or advice relating to “estate planning” or “wealth transfer planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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