retirement nest feat

10 Tax Deductions for Retirees

Usually the retirement age is 50 and above in most of the companies, this is a period away from day to day work routine and tensions. People get a huge amount when they retire and also get pension every month, all this looks good and calms you down, and also during the working period people set aside investment for old age.

Ultimately most of the people believe that after retirement their worry about money has come to an end but not really, only half of the work is done , the other half pending is to see that the money yields more income and save from paying more money in the form of tax. A part of pension money goes as tax and is known as commutation. Here are few savings options to protect from paying huge tax post retirement.

  • Equity Or Mutual Funds

They are either short term or long term investments. The stock or equity mutual funds are not taxed. Though the stock after retirement is a risky affair, but can be invested for a long term as short term dividends attracts tax.

  • Insurance Annuity Plan

It is a regular income wherein you pay a lump sum and decide the frequency of payments. The insurer decides the lump sum based on the interest rate. If you fall under the 10 percent tax bracket then annuity is a good option.

  • Reverse Mortgage Loan

If the individual does not get enough money at the time of retirement then he can mortgage their house in the bank. As the payment is in the form of loan they are exempted from tax. Reverse mortgage is a good source of income for the senior citizens without leaving the ownership of their house.

  • Recycling Pension

Pension money can be recycled into a new pension as it is free from income tax. For example, if you have put a lump pension of USD 2800 and you automatically get USD 720 from the Government, by this you gain 25 percent tax free amount.

  • Emergency Funds

It is tax free and the returns are in the form of Interest, capital gains and dividends which are all tax free. These bonds are taxed as interest and not dividends. And an additional advantage of these is that they can be transferred to the spouse.

  • Purchased Life Annuity

It is an annuity is bought with assets outside the pension money. These are tax free as the income is form of return of capital. By this annuity you can save upto 75 percent of the tax.

  • National Insurance Contribution

It is given by the Government which enables you to boost your State Pension Income. By this you gain a marginal gain in the income by paying a lump sum one initial payment.

  • Avoiding Tax At Death

An individual who dies before the age of 75 yrs , the pension is not taxed and is transferable to spouse. But if an individual dies after 75yrs the pension is taken as income and taxed. As long as the money is invested the amount is not taxed.

  • Personal Allowance

Retiree benefits more of personal allowance. The age related allowance is not relevant and is same as the young ones. The State Pension is taxed as normal, so any money you earn above your personal allowance is taxed 20 percent and more if you’re doing well. Usually couples maximize their personal allowance so when you retire a minimum amount of income of the household is exposed.

  • Stock Market

An individual can invest on stocks and wait for the rise. The returns are in the form of dividends and the money can be invested for a long term as well and is not taxed.

Photo Credits: www.eastspring.com.sg

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