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4 tax tips retirees should know

By Jennie L. Phipps ·
Wednesday, September 28, 2011
Posted: 3 pm ET

We're getting to the time of the year when people who are living in retirement and those facing a retirement planning deadline have to figure out how to ante up -- or avoid anteing up -- a bundle to Uncle Sam.

Schwab Financial Consultant Brian Mahoney, a branch manager in Miami and Coral Gables, offers this advice:

  • Don't neglect to take your required minimum IRA distribution. If you're 70½ or older, forgetting can cost you as much as 50 percent in penalties. Mahoney says that many of his clients wait until December when they are forced to take on unnecessary market risk. He urges them to start taking distributions early in the year so they can "dollar-cost average the same way going out that they did going in."
  • Keep an eye on your bonds. Know what the payment date is going to be and don't sell days before you get that dividend. Mahoney says every year he encounters investors who don't understand the process and sell bonds a week early, missing out on the dividend payment. "If you miss out, you're really going to be upset," Mahoney says.
  • Talk to your tax accountant before you rebalance your portfolio. If you have stocks that you have held for less than 12 months, you can sell them and take the loss as a tax deduction against the taxes you're going to pay on ordinary income. In order for this to work, Mahoney says, you have to review everything. For most people, that means working with an adviser who knows investments and taxes.
  • Where to pull the cash to live on depends totally on your tax bracket. Be sure to weigh all your options, Mahoney says. Most people's adjusted gross income drops in their retirement years, but you may not be most people. Particularly, if you're on the bubble -- you're making somewhere just north of $150,000 a year where  tax deductions begin to disappear -- sophisticated tax planning is especially important, Mahoney says.
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1 Comment
Pat Tully
October 10, 2011 at 2:32 pm

My question is this, we are trying to preserve our retirement amount, it is in a variable annuity with a guaranteed 6% annual return. We are in the last year of IRS 72T distribution. The 72T forced us to take more than the guaranteed 6% distribution over the last 4 years. We have accrued an amount of money to live on for one year and we were going to use that money at the end of the 72 T distribution period. Question is this, should we pay the penalty (5,000) and use the money in 2012 thus not eroding our guaranteed account any further, or take the last distribution, erode our guaranteed account by another $10,000?