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Tax Planning for Retirement

Everybody focuses on the growth of their investment portfolio – what their rate of return is, how they’re doing compared to the market, etc. Not as many people spend as much time considering the taxes they’ll pay once they go to monetize their assets. But, failing to consider how your income will be taxed can result in losing a substantial amount of money you’d otherwise have received.

 One important new tax a retiree needs to watch out for is a tax on their Social Security income. It may seem counterintuitive that the Federal Government taxes the benefits it itself issues, but up to 85% of a person’s Social Security income could be subject to taxation if their total income exceeds a certain threshold. If someone’s Adjusted Gross Income plus any nontaxable interest they received plus half their Social Security benefits exceeds $25,000 ($32,000 for married filing jointly), then half their Social Security Benefits are taxed as income, and if their income reaches $34,000 ($44,000 for married filing jointly), then 85% of the benefits are subject to income tax.

 So, what are some tax-smart ideas for coordinating Social Security with the rest of your balance sheet? Draw from tax-deferred assets before you start claiming Social Security. Tax-locate your investment assets so that interestgenerating investments are held in tax-sheltered accounts. Make a smart Social Security joint claiming decision with your Spouse. And above all, remember it’s not what you make, it’s what you keep, after taxes, that counts.

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