Tax Correlation of Investment Products

The vast majority of seniors need every last dime of their money to enjoy their golden years. Medical and long-term care costs are significant over a lifetime, it doesn’t compare to the accumulated taxes paid over a lifetime. We need to manage both our health and wealth. Part of managing your wealth is managing your taxes and it’s a worthwhile endeavor to learn how to do it. It’s possible that many retirees may be able to generate 10-15% more income by just managing their taxes. And there’s no place better to start than Social Security income.

Social Security attracts taxable income like a magnet. With the exception of HSA Accounts, Roth IRAs, Reverse Mortgages and Cash Value Life Insurance, everything falls prey to the provisional income test. Even items you would never consider like municipal bond income or capital gains of non qualified mutual funds or ETFs. Qualified retirement funds are the biggest contributor to Social Security taxation of all income sources. Keep in mind that a qualified plan has no basis, so it’s all taxable. And although you can delay taking distributions from your qualified plan until age 70½, you’re forced to take required minimum distributions (RMDs), which directly affects Social Security taxation.

To really manage your retirement cash flow and keep most of it in your pocket, you’re going to need some tax diversity to begin with. Equity loans from your home and cash value policies are not a form of income and thus are not reportable on your 1040. You need to begin converting qualified plans to Roth IRAs without adding a tax bracket. You need to contribute heavily to HSA accounts. Another tactical play is delaying RMDs out into the future (age 85) under Qualified Longevity Annuity Contracts. A married couple could delay up to 25% of their qualified retirement plan, not to exceed $130,000 each, i.e. perhaps as much as $260,000 as a couple!

If you can learn how to play Bridge in retirement, you can learn how to game the tax system. It will be more money in your pocket and less going to Washington