Many retirees rely upon their investment portfolios to support their lifestyle. If you start receiving Social Security benefits at the youngest possible age (62), try these tax-savvy tactics:
- Don’t sell appreciated securities you hold in taxable accounts. As long as you defer taking gains, you’ll hold down your adjusted gross income, which may lower the tax you’ll owe on your Social Security benefits.
- Try to hold your appreciated securities as long as possible. If you die while still owning them, your heirs might get a “step-up in basis,” depending on the tax law at that time. If so, no income tax will be paid on the appreciation of those investments during your lifetime.
- Try to postpone taking IRA distributions until they’re required, after you reach age 70 1/2. Such a delay can mean that your IRA will continue compounding, tax-deferred.
Again, deferring distributions will reduce your income, which can trim tax on your Social Security benefits. Moreover, a larger IRA will be left to your heirs, for ongoing tax-deferral.
Where should you turn for cash? Try drawing your taxable accounts before age 70 1/2, tapping securities selling at a loss or those without substantial appreciation.