Episode 39: What Are Some Tax Strategies for Retirement Income?

Published: March 18, 2021 | Updated on: March 18, 2021

Thank you for joining us for Episode 39 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “What are some tax strategies for retirement income?”

This is a great question. Why? Because taxes are so important. So many retirees and investors focus on getting a higher a rate of return. At the same time, they’re losing maybe a third or more of their return to taxes. What if instead of chasing a higher rate of return, you get the same rate of return but get to keep more of it? This is very important. Doesn’t that make sense? It’s not about what you earn, it’s about what you get to keep.

Who Is the Money For?

Let’s talk about tax strategies for retirement income. The first thing you need to think about when you’re planning your retirement income is to answer: “Who is the money for?” My wife Wendy and I have been fortunate. We’ve lived below our means and saved a lot of money. We have some money for children and grandchildren and some money that is for us. The money that’s for children and grandchildren, I want to set that money up in a way that it passes to them in the most tax-efficient way. Those types of assets might be stocks where they get a step up in cost basis. They don’t have to pay the tax on the profit. Examples of these assets might be Roth IRAs or Life Insurance in a trust.

The money that we want to use for our retirement income, ideally we don’t pay taxes on it. Although, sometimes that means we pay taxes today so that we don’t have to pay taxes on a larger amount in the future. I’m talking about really having the conversation on whether you should convert some of your IRAs, 401(k)s, any type of traditional retirement account over to a Roth IRA.

Right now in 2021, we are at a fairly low tax rate, historically, on a personal level. It’s very likely that taxes will go up. If they do go up, they’re going to hurt those of you that did a great job saving for retirement. Therefore, you may want to do a conversion, pay some taxes today, so you pay fewer taxes in the future, over your lifetime.

Also, if your kids or grandkids inherit money from an IRA, they now have to take all the money out within 10 years. There’s no opportunity to stretch those taxes over their lifetime.


When thinking about your tax strategy, I want you to start with that question, “Who is the money for?” For some of you, you want to use your taxable money today so that you pass on tax-free money in the future.

The bottom line is, if the money is not for you, you should take action right now. We’re at low tax rates. Set it up so the people that are inheriting that money can enjoy that money to the utmost, which means maybe reducing their taxes in the future.

If the money is for you, then you want to decide: Should you spend money from stocks and bonds that are not in retirement accounts first? Or should you spend money that is in retirement accounts and leave those stocks and bonds alone?

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download our offer, “Tax Strategies for Retirement“.

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