When I was working, I earned a paycheck and paid taxes. Since I had some, but not much, control over my annual income, I just did my tax return with limited planning, such as charitable contributions, and tax loss harvesting, for taxes. I probably controlled only 10-20% of our taxable income via dividends and interest. In general, I tried to maximize our income.
In retirement, I have I still have Social Security income which is like a paycheck and I don't have much control. However, instead of a paycheck being 90+% of our income, Social Security is about 27%. Interest and dividend account for about 53%. By using tax exempt interest options, and staying in the 12% tax bracket, I can reduced our taxable income and therefore, our tax liability significantly. Also, by managing our AGI, I enable us to take some tax credits that are phased out at higher income. 20% is rental income and enables us to take the Qualified Business Income (QBI) deduction.
In the next few years, we have RMDs, both inherited and from our own. This will be additional paycheck income that we will have less control over.
If we exceed certain income, I will need to pay additional insurance premiums for Medicare, call IRMAA, which I would like to avoid if possible since there is no benefit increase. In addition, we would lose or phase of the bonus senior deduction.
As a result, designing and planning an income and tax strategy for at least the next 5 years, and maybe even the next 10 years, will be beneficial to maximizing income we keep by minimizing our tax and IRMAA liability.
This is not financial, retirement, nor tax advice. Please consult a professional advisor.
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