I am very tax adverse. I don’t believe in paying one more cent in taxes if you don’t have to. That being said, everyone has a different tax picture. For 2012, we know what the marginal tax brackets are and we know that Capital Gains tax for most filers will be 15%. What we don’t know is what will happen to these taxes next year?
Karen is lucky enough to have a pension and will be drawing social security at the full retirement age of 66.4 years of age. She does need to supplement these fixed incomes throughout her retirement. Karen’s pension + social security will put her in the 15% tax bracket with plenty of room to pull from her investments before hitting the next bracket. This gives us some interesting choices.
Karen can start pulling from her IRA account prior to 70.5 years of age. This strategy will lower her account balance so when she does have to take the required Minimum Distributions, they will not be so big. She may also have the dividends from her Tax Free Mutual Fund paid out to her. This will supplement her shortfall and not increase her current tax burden. Karen’s third choice is to have her capital gains from her Growth Mutual Funds paid out at the tax rate of 15%.
As you can see, with some great care and planning, Karen has many choices. Her choices may not be the best for your situation, but by using solid Financial Planning, you will have choice.