In the United States, when it is time to start collecting Social Security retirement benefits, whether due to disability or age, we must calculate our finances very well. If we do not have control over the income we can use, it is possible that at the end of each month we will have financial problems. That is why it is also good to know what taxes we have to pay every year. In the case that we do not pay enough taxes, this will bring problems at all levels. Knowing what income we can collect during retirement without having to pay taxes is really important.
Controlling this well is the best way to avoid all kinds of mishaps. Therefore, if you are collecting Social Security and you have a series of extra incomes, pay attention not to make a mistake with taxes. Through some of this income you may even lose part of your Social Security pension every month, so watch out for the money you get.
Retirement income on which you don’t pay taxes
There are many ways to avoid taxes with extra income when we are already in retirement. It is necessary to know well what we are doing to avoid major problems. Still, here’s the income you won’t need to pay taxes on, at least most of the time.
- Roth Withdrawals. By using Roth accounts you will be able to avoid taxes easily. In this regard, it doesn’t matter if it’s an IRA or a 401(k) plan. Either option allows you to withdraw money tax-free after age 60. This is because the taxes related to the money are already paid in advance. For that reason, getting money from these types of accounts during retirement frees us from paying taxes.
- Inheritances. Although it’s not a good idea to rely on an inheritance for retirement, inheritances are tax-free. So if you receive an inheritance, you won’t have to pay any taxes, so enjoy this money without worry.
- Life Insurance Income. In this occasion we have a similar situation to the previous one. If with inheritances we do not pay taxes, with the money received from life insurance we do not pay taxes either. Therefore, if we receive money for the death of a relative through a life insurance, we will not have to pay taxes, since they were paid before.
Anyway, before anything else, it is a good idea to consult an advisor who assures us that we do not have to pay any kind of tax. Otherwise, we can encounter many problems in this regard. If you are already in your retirement and you have some extra income, check the taxes to avoid surprises.