Dividends: Qualified stock dividends are currently taxed at a 15% rate if you're in the 25% tax bracket or higher and a 0% rate if you're in the 15% bracket or lower. However, they will be taxed at ordinary income tax rates of up to 39.6% starting in 2013. Unless the law is changed, you may want to hold high dividend-paying stocks and funds in your annuities and retirement accounts after next year.
Long-term capital gains: Gains on stocks and funds held for more than a year are taxed like qualified dividends (collectibles are taxed at 28% though). In 2013, the rate will go up to 10% if you're in the 10% or 15% brackets and 20% if you're in a higher bracket. Since these rates are lower than your ordinary income tax rates, you may want to hold long-term stocks outside your retirement plans. In addition, you can sell stocks at a loss at the end of the year, use the losses to offset other taxes and then repurchase the stocks after 60 days. You can also give away appreciated shares of stock instead of cash to avoid having to pay capital gains taxes on them.
Short-term capital gains: Stocks held for less than a year are taxable as regular income. For this reason, it's best to keep mutual funds that trade a lot in annuities and retirement plans.
Social Security: The amount of your Social Security that is taxable depends on your total income. You can use this calculator to estimate how much of your Social Security will go to taxes. Two ways to reduce taxes on your Social Security benefits are to delay them until you're no longer working and to avoid taking taxable retirement-plan distributions while taking Social Security, since both sources of income could cause a greater portion of your Social Security to be taxable.
Once you know how your sources of income are taxed, you can use this calculator to estimate how much federal income tax you'll have to pay. This will help you figure out whether you'll have enough income after taxes to retire. The last thing you want is to have your retirement plans thrown off by a big tax bill in April.
Finally, don't forget that your state may want to tax some of this income too. The good news is that many states don't tax Social Security, pensions or retirement-plan withdrawals, and some states don't tax income at all. You can check out this site to see how different states will tax your income when you retire. Not having to pay state income taxes can make moving to a warm, sunny state like Florida that much more enticing.
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