8 Tax Strategies Boomers Need To Know

Shot of a senior man looking stressed while doing the household finances on a laptop in his kitchen.
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Navigating the tax landscape is no small feat, especially when you’re approaching or already in retirement and you want to make the most of your nest egg.

If you’re considered a boomer — someone who is in their late 50s to mid-70s — understanding how taxes will interact with your retirement income is important to your financial well-being.

Knowing the ins and outs of things like tax-efficient investments, Health Savings Accounts and the implications for Social Security can help you make informed choices with your money.

Here are eight tax strategies boomers need to know.

Opt for Tax-Efficient Investments

Alec Kellzi, a certified public accountant at IRS Extension On, said to invest in “tax-efficient” assets like index funds or tax-managed mutual funds.

“These investments tend to generate fewer taxable events, such as capital gains, which can help you minimize taxes on your investment income,” said Kellzi.

Don’t Forget About Health Savings Accounts

According to Kellzi, Health Savings Accounts (HSAs) can be used to manage healthcare expenses in retirement.

“Qualified withdrawals for medical expenses from these accounts remain tax-free,” she said. “So, you can pay for healthcare costs in retirement without any tax impact.”

Take Advantage of Estate Planning

“Estate planning is vital to ensure that your assets are transferred to heirs as smoothly as possible,” Kellzi advised.

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Estate tax laws can change between now and retirement, so it’s essential to review and update your plan periodically.

She continued, “Proper planning can help minimize estate taxes and ensure that your assets are distributed according to your wishes.”

Be Informed About the Qualified Charitable Distribution

“The number one thing I want all of my retiree clients to be aware of is the qualified charitable distribution,” shared Corey Noyes, financial advisor and owner of Balanced Capital.

He explained, “In a nutshell, it is this: Once you reach the age of 70.5, the IRS lets you send money directly from your retirement account to qualified charities. That in and of itself isn’t the big deal. The big deal is that the distributions you send to charities are an above the line tax deduction. That means you can add them to your standard deduction. For anyone over the age of 70.5 who has intentions of giving money to charity, this is absolutely the way you should be doing it.”

Be Aware That Distributions Affect Social Security Taxation

Enrolled Agent Steven J. Weil, Ph.D., president and tax manager of the 35-year-old firm, RMS Accounting, said to remember that distributions from your IRA or pension will affect how your Social Security is taxed.

“Single taxpayers receiving Social Security can pay tax on as much as 85% of their Social Security if modified adjusted income exceeds $34,000,” said Weil.

“For married couples filing jointly, the number is $44,000. If modified adjusted gross income exceeds just $25,000 for single filers and $32,000 for married joint filers, then up to 50% of Social Security may be taxable.”

Here are a couple more distribution tips from Weil:

  • Time any large IRA or pension distribution so they take place before you start taking Social Security or in a year where Social Security is already 85% taxable.
  • Low-income years, and those with net operating losses from business activities, are the perfect time to reposition funds out of IRAs and Pensions to a non-qualified (ordinary) account or ROTH conversion so funds will be available when needed without affecting the taxability of Social Security.
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A Roth IRA Could Be Helpful

“If you think you will retire in a higher or the same tax bracket, consider funding a ROTH IRA instead of a traditional IRA,” Weil said. “You will not get the tax deduction for your contribution, but as long as you meet the other requirements, the money you later take out will be tax-free and this includes the growth.”

Medicare Part B Premiums Depend on Your Income

Married taxpayers filing a joint return with income under $182,000 pay only $170.10 per person for Medicare Part B. For all others, the threshold is $91,000.

“However,” Weil added, “depending on your income, the Part B premiums can increase to as much as $578.30 per month per person.”

Choose Wisely When It Comes to Tax-Saving Strategies

“Never let the tax tail wag the dog,” Weil cautioned. “There are lots of tax-saving strategies out there that only make money for those that are selling them. So never let yourself be rushed or pressured into a decision, and be sure to review any tax strategy with your tax professional. In the end, the important question is how much do you get to keep and use, not how much you pay in taxes.”

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