Best Money Saving Tip For Retirement

Understanding the IRS annual tax bracket can be the best money saving tip for retirement.  You can reap benefit by keeping up with the IRS tax bracket which can change every year.  For those who do not have ROTH IRA accounts to tap into during retirement, you will most likely must pay the IRS taxes on your retirement income.  Your retirement income could come from IRAs, 401K, Social Security, rental income, brokerage accounts, savings accounts, bonds, pension and many more.  All these retirement income can be taxable, meaning you will need to file tax you may owe in April.  Keeping your taxable income at or under 15% tax bracket will help you minimize the total tax you pay during your retirement.  By knowing the IRS annual tax bracket, you can control the withdraw amount from your retirement source of income to minimize the taxes you pay to the IRS every year.

The federal income tax consists of seven rate brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%.  These rate bracket depends on your filing status (Single or Married Filing Jointly) and income level.

Single (2016)

Taxable Income

Tax Rate




$927.50 plus 15% of the amount over $9,275


$5,183.75 plus 25% of the amount over $37,650


$18,558.75 plus 28% of the amount over $91,150

$190,151—$ 413,350

$46,278.75 plus 33% of the amount over $190,150


$119,934.75 plus 35% of the amount over $413,350

$415,051 or more

$120,529.75 plus 39.6% of the amount over $415,050


Married Filing Jointly (2016)

Taxable Income

Tax Rate




$1,855 plus 15% of the amount over $18,550


$10,367.50 plus 25% of the amount over $75,300


$29,517.50 plus 28% of the amount over $151,900


$51,791.50 plus 33% of the amount over $231,450


$111,818.50 plus 35% of the amount over $413,350

$466,951 or more

$130,578.50 plus 39.6% of the amount over $466,950

Most of us probably cannot generate more than $100,000 from our retirement sources so the saving really comes into play for the 15% tax rate versus 25% tax rate.  The advantage here is obvious…  If you are married, then your combined source of retirement income for both you and your wife needs to be less than $75,300 to stay within 15% tax bracket.  Anything over will be taxed at 25% rate.  So, if your combined retirement income is $100,000, then you will pay the IRS $10,367.50 (15% rate) + $6175 (25% rate) = $16542.50.  If you can defer $24,700 to later years, then you can save $2470 in taxes by staying under the limit of 15% tax bracket.

Top 5 Ways to Minimize Income Tax in Retirement and Stay Under the 15% Tax Bracket

Retirees generally have many sources of income, and they all need to be monitored carefully so you can avoid paying high taxes. 

  • Reduce expenses can help you stay under the 15% tax rate because it causes you to withdraw less from your retirement fund. 
  • Minimize mortgages before retiring.  One of the biggest monthly expenses is the mortgage.  If you can figure out a way to get rid of your mortgage, then it will help you live with less, thus reducing your withdraw from your retirement fund.
  • Generate dividend income or long-term capital gains as they are taxed at 0%, 15%, or 20% depending on your tax bracket.  If you can stay under the 15% tax bracket, then your dividend income will not be taxed, which can be huge benefit for your retirement.
  • Donate to charity helps.
  • Take investment losses when necessary.

Did you know…

Social Security income is taxed but if the combined income is below $32,000, then you do not have to pay any tax on your Social Security benefit.  However, as your income increases, your tax on the Social Security benefit increases.

File a joint return, and you and your spouse have a combined income that is

  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
  • more than $44,000, up to 85 percent of your benefits may be taxable.

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