Did you know you can have $116,000 and pay 0% in taxes in retirement?
It’s possible using dividend income, delaying social security and having a good makeup of accounts like brokerage accounts and Roth IRA’s.
Retirement is a time when many people hope to enjoy the fruits of their labor without worrying about tax bills. However, this is not always easy to achieve, and it often requires careful planning and strategy. In this article, we will discuss a strategy for achieving a zero percent tax rate legally in retirement.
The strategy we will discuss is illustrated by the case of a client who retired at the age of 59 and a half with a total of $2 million, $1.5 million of which was in an IRA and $500,000 in a non-qualified brokerage account. The client also inherited two and a half million dollars in Exxon stock.
To take advantage of the zero percent tax rate, it is necessary to have a non-qualified account, which the Exxon stock qualifies for. By doing this, it is possible to have a total income of up to $116,950 for a married couple filing jointly and pay no taxes. This is because the standard deduction can be added onto the maximum tax bracket for dividend income, which is $89,250, to give a total income of $116,950.
This strategy can be especially useful if you do not need a lot of income to live the lifestyle you want in retirement. In the case of the client, they never needed more than $100,000 a year in income.
By using this strategy, it is possible to withdraw more money from your accounts and still keep your taxes in retirement at zero percent. For example, if you were taking income out of an IRA and paying taxes on it, you would have to take out around $150,000 a year to net $116,950.
However, it is important to remember that all other forms of income, such as Social Security, rental income, bank CD interest, and other forms of dividend income, will be stacked on top of your dividend income. This means that if you have too much other income, it could bump you out of the zero percent tax rate.
To avoid this, delaying Social Security can be a good strategy. It is also possible to delay a Roth conversion strategy if you do not need to pay any taxes on your income.
It is worth noting that this strategy is also available to single filers, with a maximum income of $58,475.
For those with low income in retirement, it may be possible to buy a stock in your brokerage account and sell it at a higher price to realize a gain. This can be done tax-free as long as the gain stays under the maximum tax bracket.
In conclusion, achieving zero percent taxes in retirement is possible with careful planning and strategy. By utilizing a non-qualified account and careful management of other forms of income, it is possible to maximize your withdrawals and enjoy your income without worrying about taxes in retirement.
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