Retirement can be an exciting time to enjoy the fruits of your labor, but it’s also a time to be smart about your income sources. One strategy to maximize your income in retirement is to take advantage of sources that are not taxed. Here are five income sources that can help you keep more of your money in retirement.

Capital Gains From Selling Your Home
When planning for retirement, it’s important to explore all potential income sources, and one often overlooked option is capital gains from the sale of your home. If you’re considering relocating to a new location for warmer weather or to be closer to family, selling your primary residence can be a significant income source.

If you sell your primary residence you can exclude up to $500,000 in capital gains from taxation when filing jointly as a married couple, or up to $250,000 if you’re a single filer. In order to qualify for the tax exclusion, you must have lived in the property as your primary residence for at least two out of the last five years. For example, if you bought a house for $600,000 and sold it for $1,000,000, your capital gain would be $400,000. If you’re married filing jointly, that gain is not taxable.

0% On Long Term Capital Gains
If you anticipate a period of low income in the years following your retirement, you may want to explore the option of selling your big gainers and potentially avoiding taxes on the gains. This is possible due to the current long-term capital gains tax rate of 0%. Married couples with a taxable income under $89,250 and single filers with an income under $44,625 per year can recognize long-term capital gains tax-free.

However, before making any significant moves, it’s crucial to seek advice from a wealth advisor or a CPA. Selling assets to realize capital gains can increase your taxable income, so it’s not something you should do without proper planning.

Roth IRA or 401(k) Withdrawals
One of the best ways to enjoy tax-free income in retirement is to invest in a Roth IRA or 401(k). With a Roth, you pay taxes on your contributions upfront, but all qualified withdrawals are tax-free. This makes it an attractive option for many people, especially those who expect to be in a higher tax bracket in retirement.

Health Savings Accounts (HSAs)
HSAs are an excellent way to pay for medical expenses tax free during retirement. HSAs are available to those with high-deductible health insurance plans and allow you to save money on a pre-tax basis. As long as you use the funds for qualified medical expenses, your withdrawals are tax-free.

Municipal Bonds
Municipal bonds are issued by state and local governments and are a popular investment option for retirees because they are exempt from federal taxes. In some cases, they are also exempt from state and local taxes, which makes them a great source of tax-free income.

Bottom Line
Taking advantage of tax-free income sources can be an excellent way to maximize your retirement income. Our goal is to mitigate taxes and keep more of your hard-earned money in your pocket. Be sure to consult with a financial advisor to determine which tax-free income sources are best suited for your unique financial situation.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor


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