Taxes for Retirees

Income taxes are affected when you turn 65, go on Medicare, start your Social Security check, start drawing down your IRA, possibly need long term care, and leave money to your spouse or kids.

There are simple ways to minimize the tax of your estate—if you know the mechanics of how various assets are valued and the details of tax law. There is great value in consulting with an expert; mistakes are costly.

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Taxes in Retirement

We are forward looking tax planners. Tax planning in retirement is balancing Social Security income, taxable IRA and 401(K) withdrawals, Roth IRA withdrawals, pension income, and withdrawals from regular savings to meet your income needs. Cardinal helps you find the balance that minimizes your total income tax paid.

Cardinal Lessons on Taxes

The Cardinal Guide To: 62+ Taxes

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Up to 85% of your Social Security can be taxed depending on your “other taxable income” in a given year. In 2021, if your combined income is above $25,000 as an individual, or above $32,000 as a couple, some of your Social Security check will be taxed. State taxes on Social Security vary, with some states completely excluding Social Security from state income tax and others taxing it as regular income.

Medicare applies a surcharge to higher-income beneficiaries. IRMAA, or the Income Related Monthly Adjustment Amount, is an additional tax charged on your Part B and Part D monthly premiums. In 2021, if you make over $88,000 as an individual, or $176,000 as a couple, you can be subject to IRMAA charges.

Purchasing long term care insurance has tax benefits. Not only are the benefits paid to you tax-free, but there is a way to deduct some of the premiums paid for long term care insurance.

IRAs and 401(k)s allow you to postpone income taxes, but you can’t avoid income taxes altogether. RMDs must start by age 72. RMDs increase your taxable income, and possibly increase your Social Security and Medicare taxes. Consider using a Roth IRA, or a Roth IRA conversion, to reduce your taxable income in retirement.

There are income taxes even in death. If you leave a traditional IRA or 401(k) to your heirs, they will have to pay the income taxes before they can use the money.

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