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Tips to Reduce Insome Tax After Retirement

September 27, 2018
Retirement planning is one of the most important thing we do financially for ourselves. We ensure that we have a steady source of income when are regular income from our jobs stop. But whether we like it or not, even our retirement income has taxes levied on it. While paying taxes was not a problem when we were working, it's a whole different ball game after we retire. Here's a few ways we can reduce income taxes after retirement:
  1. If all your money is in retirement plans:
  • Most of your income will be taxable, hence be careful about understanding the tax deductions you qualify for.
  • Be careful about your income tax bracket. If your planned withdrawals from your IRAs put you in a higher tax bracket, look for ways to avoid using the IRAs. Use credit cards towards the end of the year, but always ensure you pay that off within 60 days.
  1. If you have money inside and outside retirement plans:
  • If you have money outside your retirement account, you will be able to reduce your taxes by withdrawing in the initial phase of your retirement from your non retirement account. Non retirement funds are subject to lesser taxes.

So sensibly speaking, you need to withdraw from non-retirement funds first. Using this strategy, you can bring down your income tax considerably lower. But if you come to the end of the year and realize you have zero taxes to pay or come under the category of low tax bracket, then take advantage of that by withdrawing from your retirement account and to have it taxed at the lowest rate.

If you have income outside retirement fund and you are in low income tax bracket, consider converting your traditional Individual Retirement Agreements (IRAs) into Roth IRAs and use the retirement money to pay the income taxes.

But like we said, it's sensible to start planning your retirement fund as early as possible. HDFC Life has a lot of smart plans to help you plan your retirement as per your requirement.

https://www.hdfclife.com/online-life-insurance-plans

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