converting some of your money earmarked for retirement-use to a Roth IRA? Be sure to monitor the amount converted to keep you in the lowest tax bracket possible. If you can manage your annual income, consider Roth conversions in years when you've kept your income low. You, your spouse and/or any beneficiary that inherits the Roth money will pay no income taxes or principal on earnings. Unlike a regular IRA, Roth IRA money does not have to be withdrawn during your lifetime but is always available tax-free if needed.

What about taxes on your Social Security benefits? Unfortunately, up to 85% of your SS benefits will be taxed if your "other income", including 50% of your SS benefits and 100% of interest you earn from tax-free municipal bonds, exceeds an amount that shrinks every year because it is not adjusted upward for inflation. Money withdrawn from a Roth IRA does not count as "income" and can be used to help reduce taxes on SS benefits. In addition, monies received from annuities do not count in the Social Security taxable calculation.

Deferring taxes on earnings by using annuities for your longer-term retirement money can also lower current taxes. Annuity earnings are not taxed until actually withdrawn; thus, moving money from other interest-earning accounts, like bank CDs, can lower your current taxable income and help you keep more of your SS benefits. Many retirees use tax-free municipal bonds to lower taxes but this is a good strategy only if you're in a higher tax bracket because highly rated municipal bonds pay a lower interest rate than comparable taxable bonds. Another strategy is to accelerate your withdrawals from IRAs and other taxable accounts during years when itemized deductions will put you in a zero or lower tax bracket. This means you'll be "prepaying" your income taxes when rates are lowest. Of course, tax planning can be a bewildering affair; feel free to contact us to talk about how to manage your income to lower your taxes. Don't ever forget that a dollar saved in taxes is a dollar kept to enrich your retirement lifestyle.