3 Ways to Pay Less Tax in Retirement

There are many expenses that tend to be stressful for retirees. Healthcare is a big one, as it can eat away at a lot of income. The same holds true for housing. But one expense that really tends to catch seniors off-guard is none other than taxes.

It’s a huge misconception that when it comes to paying taxes, retirees are largely off the hook. Not so. Seniors are required to pay taxes on traditional retirement plan withdrawals, pension income (most of the time), and earnings from part-time work, among other things.

If you’re worried about paying taxes in retirement, there are several things you can do to lower that burden and shield more of your income from the IRS. Here are three to start with.

1. Save in a Roth IRA or 401(k)

Traditional IRAs and 401(k)s offer an immediate tax break for making contributions, since they’re funded with pre-tax dollars. Roth IRAs and 401(k)s, on the other hand, do not.

But whereas traditional IRA and 401(k) withdrawals are taxed in retirement, Roth plan withdrawals are taken tax-free, which means that by forgoing a tax break up front, you’re buying yourself the option to pay less tax in the future. This is an especially wise move if you think you’ll be in a higher tax bracket in retirement than you are today (say, because you’re amassing a large amount of savings).

2. Load up on municipal bonds

Bonds are generally considered to be a good investment for seniors, since they’re subject to less volatility than stocks. But bonds come in a number of forms, and from a tax-related standpoint, it pays to favor municipal bonds.

Municipal bonds are those issued by…

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