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Tax Planning For a Financially Secure Retirement

Anna D. Banks

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The one thing that is likely to be important, but overlooked, during the entire process of your pre-retirement planning, is tax-planning for a financially secure retirement. It is easy to save on the taxes and to enhance your total retirement income, simply by keeping informed, doing a little judicious research, and taking the right steps.

  • Consider a rollover of retirement funds from an IRA to a Roth IRA
  • Defer income or accelerate deductions to qualify for the Roth IRA conversion
  • Consider a rollover employer stocks and bonds to IRA
  • Calculate the tax payable on lump sum distribution from the retirement plan
  • Maximize tax deferral through various distribution methods for your IRA and annuities
  • Take the required minimum distributions from your IRA in lowest tax years
  • Avoid penalty tax on the distributions from your IRAs
  • Use disability insurance premiums to maximize the non-taxable part of disability benefits
  • Create separate IRA accounts for beneficiaries to maximize tax deferrals
  • Reduces or eliminate federal estate taxes on IRA benefits
  • Use charitable beneficiary designations to eliminate taxes on IRA benefits

The various strategies for tax-planning for a financially secure retirement, some of which are explored below, are fairly simple, and can make a substantial difference to your finances in your retirement. For example:

You can avail quite a solid long-term tax saving if you transfer funds from a traditional IRA to a Roth IRA. You can save on taxes because you are in a lower tax bracket while making the transfer than the point where you would withdraw the funds. You can also transfer high-income assets to the Roth IRA, or pass your IRA funds to your heirs if there is a lot remaining after you die. In addition, you can gain long-term tax savings due to tax rate differential.

Consider making the transfer from IRA to Roth IRA in the particular year when you have a tax loss or fit into a low tax bracket, for some reason. Although the amount transferred, or a part of it, is taxable income, it can be offset against your tax losses. Alternatively, you may have to pay taxes on the funds you transfer at lower tax rates than those that will apply to future distributions from the IRA, giving you substantial long-term tax savings using the tax rate differential and the tax-free distribution of earnings from the Roth IRA.

Long-term tax savings can also be accumulated by transferring high income assets. Regular IRAs generally have assets that may have a high income potential. Transfer those assets to the Roth IRAs. Even if you have to borrow money to pay the tax on the transfer, the rate of earnings from the transferred assets is higher, than the interest rate on your loan, so there will be a substantial long-term tax saving.

Don't borrow from a home equity line of credit can to add to your savings, even though it qualifies for deductions on the interest you pay on the loan. You can also use low-yielding liquid funds for paying the tax on the transfer to the Roth IRA.

If you don't use your IRA funds during retirement, transfer them to a Roth IRA, before your heirs inherit it. The advantage would come from the fact that Roth IRAs do not have to make distributions during your lifetime, while traditional IRAs make minimum distributions when you reach the age of 70 ½. Transferring to a Roth IRA avoids the tax you would pay on distributions.

Do some research, get professional help from CPA or attorney, and take the right steps for tax-planning for a financially secure retirement.

© 2008 Anna D. Banks, GCDF

Anna D. Banks, a passionate advocate for baby boomers in exploring their priorities, planning and setting goals for the next stage of their lives. Assisting her clients to attract and build a professional and personal life consistent with their values is not just a goal of Anna's, it's her passion. Her diverse work experience in business, education and financial services enables her to help the diverse population of baby-boomers with their life, career, and personal finance coaching needs. Anna is currently Adjunct Faculty at Essex County College, where she teaches Career Development & Management.

Author's Note:
Do you have any questions about career development or lifestyle changes for Baby Boomers, which you think others, like you, would want to know the answers? Please place a post on or email your questions to me at


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