A proper retirement income plan should include multiple sources of retirement income. At least one of those income sources should be non-taxable. This allows a retiree to coordinate various retirement income streams to minimize the overall taxation of that income.
For example, if a retired couple’s combined income is over $34,000 annually, up to 50 percent of their Social Security retirement benefits may be taxed. If their combined income exceeds $44,000 annually, as much as 85 percent of their benefits may be taxed. (Combined income is the sum of adjusted gross income, non-taxable interest, and half of their Social Security benefits.) Therefore, couples should manage their adjusted gross income so that the percentage of their Social Security income that is taxed is minimized. Here are four places to stash money before you retire so that you can withdraw that money and any earnings as non-taxable income after you retire.
Tax Free Retirement Income – Four Avenues:
1. A Roth IRA. Money you put into a Roth Ira is taxed when you receive it – but not when it is withdrawn