No Equality for All Retirement Income

Are you getting close to retirement or have you already retired?  There are several elements that you might want to consider when it comes to your personal retirement income needs. For example, you should budget for taxes so you can make sure that your withdrawals will cover them as they could keep you from an unexpected expense when that tax bill comes.

Below are a few examples of investments that can be added into your retirement portfolio to help offset your retirement tax burden.  It is important to note there are tax considerations for each of these investments.  

Dividend-paying stocks

Many stocks pay dividends, which are a portion of a corporation’s profits paid out to its stockholders.  For most investors, a qualified dividend (one that has met certain IRS requirements) is taxed at the capital gains tax rate, which can be between 0% and 20%, depending on your tax bracket.  An additional consideration for those earning over certain income limits ($200,000 if single, $250,000 if married) is the 3.8% Medicare tax that may apply to your net investment income that exceeds those income limits.

Tax-free (municipal) bonds

When you own municipal bonds your interest payments will be free from federal income tax. If the municipality that issues the bond is located in your state, your interest payments also may be exempt from state and local taxes.  Be careful though, as some municipal bonds may be subject to the alternative minimum tax as well as state and local taxes.

Immediate annuities and Deferred Income Annuities

Immediate annuities are long-term investments designed to provide tax-efficient income for retirement. When you invest in an immediate annuity or a deferred income annuity, you pay a lump sum to an insurance company in return for a stream of income beginning either immediately, within 12 months after purchase or within 2 to 10 years. This means you can receive predictable income payments for life, regardless of how long you live or how the market performs.  In many cases, a portion of each annuity payment is considered a return of principal and not subject to income tax.  However, the earnings portion of each payment is taxed as ordinary income.  That means once you have received the original principal back, any future payments would consist of earnings only and could be fully taxable.  If the lump sum is from a qualified (tax-deferred) account, such as an IRA, the payments you receive are generally fully taxable from the start.

At Secure Planning Strategies, we are not tax preparing professional as we are wealth management experts but will work with your current CPA to create and maintain a portfolio that works for you and your unique situation.  If you do not have a great CPA, don’t worry! We are here to help you as we will provide you with several referrals of competent CPAs that are within your geographic area.  It is never too early, or too late, to think about your retirement portfolio needs.  Give us a call today at: (248) 827-2580 or e-mail us at mho@spsfinancial.com.