Bridgeriver LLC - April 2020

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APRIL 2020

How to Get More Out of Your Money When You’re in the Retirement Red Zone

“When you’re in the red zone, it might make sense to sell those securities. And you can do it in such a way that you pay zero taxes on those gains.”

The “retirement red zone” is a critical period of time right as you enter retirement where you can make some really savvy tax moves in order to cut down on your tax burden. It’s a time when your regular wages have come to an end (or are just about to), and you have to decide where your next source of income will come from. Social Security, pensions, retirement accounts, or other investments? How you structure this income will make a huge difference in what you owe in taxes. But you have control. You don’t have to take Social Security right out the gate. You don’t have to immediately start withdrawing from

This is because capital gains are not taxed if your income is within the two lowest income tax brackets. If you file jointly and your gains are less than $78,950 per year ($39,475 for single filers), the gains won’t be taxed. Capital gains can be taxed upward at a rate of 20%, so it can pay to come up with a strategy to avoid that. If you’ve already turned on your Social Security or pension benefits or been forced to take RMDs, you will potentially have to pay higher tax rates on those securities. It becomes considerably hard to avoid.

your pension, if you have one. You can decide when that money starts flowing. However, once these sources start flowing, it can be very hard or impossible to stop them, should you want to. With the SECURE Act in place as of Jan. 1 of this year, you no longer have to take required minimum distributions (RMDs) at age 70 1/2 — the new age is 72, which gives you more control over time as well. It’s another factor to consider as you’re planning out your income during retirement. With your securities, for example, you may have seen a lot of gains. Your nonretirement accounts have done well. When you’re in the red zone, it might make sense to sell those securities. And you can do it in such a way that you pay zero taxes on those gains.

However, if you can create a year or two of zero income — that is, none of your retirement income sources are flowing —you can eliminate your tax burden. You earned this money, right? You were prudent in investing years ago as you planned for retirement. So, why not get the most out of that money? When you’re in the retirement red zone, you have the chance

to make some really great moves. If you have any questions about how to do it or exactly when to do it, don’t hesitate to give us a call, and we can strategize together.

-Dan Casey

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