Home Articles 2021 Taxes for Retirees Explained

2021 Taxes for Retirees Explained

Looking at all the charts above, it is clear to see that in comparison to years past we have pretty low tax rates.

The Tax Cuts and Jobs Act, passed in 2017, lowered tax rates, with a sunset provision that would raise taxes back to where they were in 2025 if nothing is done.

This means now is an optimum time to do a number of things that could dramatically lower the amount of taxes you pay in retirement.

The most common strategy used to reduce taxable income is a Roth conversion. A Roth conversion is where you take money from your traditional IRA or 401(k) and transfer it into a Roth IRA.

Traditional IRAs and 401(k)s are tax-deferred, meaning you do not have to pay taxes when you put the money in the account but pay taxes when you take distributions from the account. Roth IRA contributions are not tax-deductible, but withdrawals are tax-free.

Performing a Roth conversion means that you will have to pay taxes on the money being moved. For this reason, it requires a well thought out plan.

At Cardinal, we specialize in helping people with Roth conversions. We understand how the rise in taxable income is going to affect all your finances, now and in the future.

For example, if you took a large distribution from your traditional IRA and moved it into a Roth, it could increase your taxable income so much that you would be required to pay IRMAA, a surcharge on your Medicare Part B and Part D. This surcharge can increase your Medicare bill by thousands a year.

For one client, we were able to come up with a plan that allowed them to do a Roth conversion, taking advantage of the current low tax rates, and avoid IRMAA. He was in his last year working, so due to his retirement, he was able to file an appeal to IRMAA as this was what qualifies as a “life-changing event”.

For others, we look very closely at their income and come up with a plan for how they can pull out just the right amount of money to avoid any unintended consequences.

Let’s look at the couple we mentioned earlier with the combined $45,000 of income. Looking at the 2021 tax brackets, they could pull about $36,000 from their IRA and have it be taxed at the 12% rate. They would also not trigger IRMAA charges.

Not only would they be paying a very low tax rate on this $36,000, they would then have access to over $30,000 of tax free money in the future.

If we did this same type of planning every year, they would eventually be able to move most, if not all, their IRA money into a Roth, paying low taxes and setting themselves up with tax-free retirement income.

Starting this strategy sooner rather than later is going to pay off in the long run, though anyone at any age can use a Roth IRA conversion to their advantage.


Listen To Finishing Well on Truth

Newest Live Episodes of Finishing Well are on The Truth Network

Finishing Well
Finishing Wellhttps://www.cardinalguide.com/finishing-well/
Retirement planning involves a lot more than just managing your money. This show is the complete guide to planning for and living in retirement, helping families finish well. Host Hans Scheil will discuss a new topic every week ranging from Social Security and Medicare to IRAs and taxes. Follow along each week by downloading the corresponding chapters below for free! New episodes air: Finishing Well Schedule on Truth Network
- Advertisment -

Recent Posts

04.12.21 The Latest Effort to Redefine Marriage

The Line of Fire Radio Broadcast for 04/12/21.

The Modern Genocide of the Uyghur People

Chelsea Patterson Sobolik on Family Policy Matters

Three Non-Politically Correct Warnings, Part 3

The King's Arrival: A Study of Matthew 1‑7: A Signature Series

Classic Car Guy Comedy – Camp Victory

A funny look at victory and camping...

Bible Wonder- A Women’s Body

Bible Wonders with The Christian Car Guy

Loving Your Spouse in the Midst of Parenthood

Patrick Schwenk and his wife, Ruth, offer help for maintaining a thriving marriage amidst the demands of parenthood in a discussion based on their...

The Ascension (Part 1 of 3)

The Gospel story doesn’t end with Jesus’ death and resurrection. On Truth For Life, Alistair Begg teaches that without Christ’s ascension into heaven, His redeeming work would've been incomplete. Find out where Jesus is and what He’s doing now. Liste

Angels and Demons: How to Resist the Devil

Ever been the target of a scam? Many of us have, some without even realizing it. None of the scammers admit they’re trying to...
%d bloggers like this: