Most people think the key to lowering taxes in retirement is simple: use Roth accounts.
But what if the real strategy is more nuanced than that?
In this episode of The Divorce the IRS Podcast, we break down one of the most important concepts in retirement tax planning: finding your “ideal number” in tax-deferred accounts and using a combination strategy to minimize taxes over your lifetime.
While Roth IRAs and Roth 401(k)s are powerful tools, their value goes far beyond tax-free growth. When used correctly, they can help reduce your retirement tax rate, avoid Social Security taxation, limit Medicare premium increases, and even help sidestep issues like the widow’s penalty.
But here’s the key insight: maximizing Roth alone is not the full strategy.
We explain why having some money in pre-tax accounts can actually work in your favor, especially when you understand how to use your standard deduction each year. By coordinating withdrawals between tax-deferred and tax-free accounts, you can potentially generate income in retirement while paying little to no tax.
Using a simple example, we show how the standard deduction allows you to withdraw from pre-tax accounts tax-free, and how going beyond that threshold triggers taxes at the lowest brackets.
This episode introduces the “ideal number”, the amount you should have in tax-deferred accounts by retirement to fully use these rules without exposing yourself to unnecessary taxes from required minimum distributions later on.
If your goal is to build wealth while paying the least amount of tax possible over your lifetime, this is a conversation you cannot afford to miss.
Calculate your ideal number:
https://baobabwealth.com/ideal-number/
Watch the Ideal Number Video:
https://baobabwealth.com/the-ideal-number-for-tax-efficient-retirement-what-most-people-miss/
In This Episode
• Why Roth accounts are powerful but not a complete strategy
• How combining tax-free and tax-deferred accounts lowers lifetime taxes
• How the standard deduction creates tax-free retirement income
• The concept of the “ideal number”
• Why too much in pre-tax accounts creates future tax risk
What’s Coming Next
• Roth conversion strategies to reduce future taxes
• How to shift assets toward tax-free income
• Advanced strategies to minimize taxes in retirement
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