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How to Avoid Paying Income Taxes in Retirement

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Name:  Jeff Haywood, CPA

Website: The CPA Superhero

Entry Category: Retirement and Investing

#MoneyMinute Voting is closed

Here’s how you avoid paying income taxes in retirement. You use two different types of accounts: your retirement accounts and your investment accounts.

Your retirement accounts, when you pull money out of that that’s never been taxed before, now it’s going to be subject to ordinary income taxes. However, you can take money out of your retirement accounts up to your deductions and exemptions without paying tax on it, assuming that’s all your taxable income.

So for example, for 2015 for a single person the standard deduction and exemption will be $10,300. For a married couple it will be $20,600. So you can pull money up out of your retirement accounts without paying tax on it up to those amounts.

But where is the rest of the money you’re going to need come from? Your investment accounts. You see you’ve already paid tax on that money, so it won’t be taxed again. So by using these two types of accounts, you can avoid paying income taxes in retirement.