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Be Tax-Smart About Using Your Retirement Savings

Everyone needs income in retirement. But when you take money out of your retirement accounts, there can be big tax impacts. How can you be smart about using your retirement savings without paying the IRS too much in taxes?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about some essential considerations in assessing the tax impact of tapping your retirement savings. Dan first notes that traditional IRAs and 401(k) accounts create taxable income when you make withdrawals, while Roth IRAs and 401(k)s don't. Dan points out that this can have huge implications beyond the immediate tax impact, as having too much taxable income can also lead to more of your Social Security benefits getting taxed, losing tax breaks due to phaseouts, and even missing out on eligibility for Obamacare subsidies. Dan also points out, though, that in some cases, it makes sense to have more taxable income, especially for those in the lowest two brackets for which certain capital gains and dividend income get taxed at 0%. Dan concludes that all the competing factors make tax planning complicated for retirees, but the smarter you are about it, the more of your savings you can keep out of the hands of the IRS.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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