taxes

5 ways to reduce taxes in retirement

Retirement » 5 Ways To Reduce Taxes In Retirement

Insurance and annuities
Insurance and annuities © arka38/Shutterstock.com

Life insurance comes with a tax-free death benefit. Though it won't help you in your lifetime, it will help heirs.

"Life insurance can also distribute tax-free streams of income up to what you put into the policy that can be used to complement retirement income streams," says Leonard Wright, CPA, member of the AICPA's National CPA Financial Literacy Commission.

There are a couple of caveats; for instance, taking cash from a life insurance policy will reduce the death benefit.

Plus, a combination of bad luck in the market and borrowing against the cash value of the policy can lead to increased premiums or a giant tax bill if the policy lapses.

Annuities are a type of insurance product that some retirees may consider as well.

"They manage your longevity risk and also have an exclusion ratio," Herman says. The exclusion ratio means that part of the income you get from your investment will be taxable and part of it will not.

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