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Senior Retirement Tips :: Tax Efficient Investment
Tax Efficient Investment: Retirees Are Getting Tax Breaks on An Efficient Investment
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Tax efficient investment is one of the primary concerns for financially-savvy retirees. Unfortunately, the tax laws and regulations are constantly changing and it’s hard to stay on top of the benefits and breaks for retirees.
In some cases, the new tax laws could save you money or could even alter when you plan to retire or your investment choices after retirement. For an overview of tax efficient investment choices that are perfect for the retiree, keep reading.
Tax Free Treatment of Dividends
Starting in 2008 and scheduled to continue through 2010, taxpayers in the lowest income tax brackets (10-15%) can qualify for tax-free treatment of any long-term capital gains or dividends.
That means if you can keep your taxable income below the $65,100 mark for 2009 (the 15% income tax bracket for the year), your dividends and capital gains on your investments will be free.
Those with taxable incomes not exceeding $32,550 can qualify for a 0% tax rate on all their qualified investment income – now that’s a tax efficient investment.
Reducing Your Income to Qualify
To reduce your adjusted gross income for the year, claim the standard deductions and personal exemptions and you can typically knock off a clean $19,000 from your adjusted gross income.
Don’t forget, a portion of your Social Security benefits are also tax free, meaning it’s easier than ever to stay in that 15% tax bracket.
For Added Benefit, Convert Part of Your Traditional IRA to a Roth IRA
Without pushing yourself over the $65,1000 mark, try converting part of your traditional IRA to a Roth IRA for a more tax efficient investment.
You’ll still owe taxes on the amount converted over, but once your Roth has been open for five years, it will give you tax-free retirement income and also provide your heirs with a tax-free investment.
You can repeat this over several years, spreading the conversions over a period of time (before you turn 70 ½ though). The end result? A converted Roth IRA that’s a tax efficient investment for years to come.
Consult a Financial or Retirement Planner
Before you start moving your traditional IRA into a tax efficient Roth IRA, consult a qualified financial planner, investment advisor or retirement planner.
They can help you reduce the tax impact of your withdrawals and also develop a long-term plan designed to minimize your taxes in the long run both for yourself and your heirs.
Not every tax efficient investment is a good one. Before you move to a Roth IRA or increase your investments, double check your current tax status and make sure you won’t push yourself over that $65,1000 limit for the 2009 tax year.
Otherwise, you could get hit with a hefty investment tax bill.
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SeniorRetireTips.com :: Tax Efficient Investment