CEO Today Magazine August 2018 Edition

25 www.ceotodaymagazine.com 4 Tips to Reduce Tax on Your Retirement Benefits tax-free income from a Roth account can help you control the amount of taxes you pay on Social Security benefits. Invest in MLPs and REITs If you are comfortable tolerating some complexity in different types of investments and tax reporting, you may benefit from master limited partnerships (MLPs) and real estate investment trusts (REITs). At times, the income you get from MLPs is a return of capital in a way that the return of capital is not taxable to you. When you go to sell the MLP, you will have a higher capital gain. For all the investors in the highest tax bracket, MLPs can offer substantial tax savings. On the other hand, REITs potentially offer income as well as tax savings. Dividends from REITs are taxed as ordinary income; dividends in excess of the REIT’s taxable income are treated as a return of capital. Just like MLPs, the return of capital reduces the investor’s cost basis. Insurance and Annuities Life insurance comes with a tax-free death benefit. While it may not help you when you live, it will definitely help your heirs after your passing. 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. You may also consider annuities, which are a type of insurance product. They manage your longevity risk and have an exclusion ratio. The exclusion ratio refers to that part of the income you get from your investment which will be taxable and part of it which will not be. Shift to a Tax-Friendly Place One of the easiest ways to reduce taxes in retirement is by moving to a place that has no state income tax, like Florida, Texas and Nevada. Apart from state income taxes, you must consider the cost of living in a state which can vary based on various factors such as insurance, property and sales taxes, and heating costs. Moving to a new place can seem expensive at first but it might actually be monetarily beneficial for you in the long run. Take the help of a financial advisor in order to understand how you can reduce taxes. It will greatly benefit you if you have a concrete plan to manage withdrawals from your retirement accounts. Author Bio: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch,Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com .