5 ways for retirees to save on future taxes

Lowering your tax bill can make all the difference in retirement.
Taking maximum advantage of tax breaks and other strategies will make savings last longer, which is critical for those living on a fixed income.
That means tax planning can't end with the annual filing deadline, however. Just as workers are becoming more self-reliant in financing their retirements, it's increasingly important for retirees to be savvy about the tax consequences of their actions.
Today's seniors have a host of decisions to make regarding managing their tax burdens — from where to live to how to take money from accounts to charitable giving.
Those decisions have the potential to reduce federal and state income taxes while also taking the impact of property, sales and other taxes into consideration.
That doesn't mean taxes should be the sole motivation behind a key move or transaction. But a bit of long-term tax planning can go a long way.
Retirees may be able to lower their annual tax liability by thousands of dollars with some modest effort.

Here are some potential ways to reduce taxes in retirement:
1. Move Consider moving to a more tax-friendly state. Your pension and 401(k) distributions, as well as dividend and interest income, generally are taxable. That could provide the financial incentive to relocate to one of the nine states with no broad-based personal income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income tax at all, and New Hampshire and Tennessee tax only dividends and interest.
Still, it's important not to overlook other taxes. High property and sales taxes can partially or fully offset the absence of a state income tax, as is the case in Florida.
Perhaps leaving money to your heirs is a priority. Even if your estate isn't large enough to owe money under the federal estate tax, be aware that 14 states and the District of Columbia have their own estate taxes. And eight states impose a separate inheritance tax, paid by the recipient rather than the estate. Details are at the Retirement Living Information Center site, www.retirementliving.com .
You might be able to move just a small distance to make a big difference. In the Washington, D.C., area, Maryland and the District of Columbia each have $1 million estate tax thresholds while neighboring Virginia has no estate tax. It's not uncommon for area retirees to sell their homes and move to Virginia for that reason.

2. Transfer assets Making gifts during your lifetime is one strategy for reducing estate taxes. The tax code allows tax-free annual gifts of up to $13,000, or $26,000 if made jointly with your spouse, in cash, investments or property to an unlimited number of people. This can be a great way to help your children while also reducing estate taxes.
But look before you gift. The Internal Revenue Service warns on its website that the laws on estate and gift taxes are some of the most complicated on the books.
Gifts in excess of the tax-free annual amount not only may incur a gift tax, they will reduce the amount that may be passed free of estate tax. They may also cause your children to pay substantial, and avoidable, capital gains taxes in the future.
Check with an adviser to make sure you fully understand the consequences before using any gifting strategy.

3. Convert to a Roth RMD, short for required minimum distribution, surely rivals IRS as a least favorite acronym among retirees. It refers to the minimum amount that must be withdrawn from a retirement plan account starting with the year the owner reaches age 70 1/2.
Forced distributions raise your taxable income and draw down your 401(k), pension or Individual Retirement Account. You want to take out as little as possible beyond your immediate needs.
One good way to achieve that is to convert a traditional IRA to a Roth IRA. The RMD rules don't apply to Roths while the owner is alive (though they do to beneficiaries). So you can allow your Roth to grow until you need to tap it, and even then distributions will be tax-free.
Roths don't make sense for everyone, especially if you will need the money soon to meet retirement needs. Check with a financial adviser.

4. Donate to charity You can dodge a tax hit on a withdrawal from your IRA or workplace retirement plan by steering it straight from the account to a charity.
This is an excellent tax planning vehicle because you don't have to include the distribution as taxable income. It's also been very popular since it was created in 2006.
The maximum charitable donation allowed from an IRA is $100,000 a year. But you can benefit from a donation of any size — whatever you planned on giving to charity for the year.

5. Diversify Tax diversification can stretch retirement savings. Besides potentially lowering taxable income, parking money in places with various levels of tax exposure provides the flexibility to deal with unknowns such as changing tax rates.
Investors should consider diversifying their savings into three different tax buckets for tax efficiency as they access their assets in retirementl.
Those would include tax-deferred accounts such as 401(k)s and traditional IRAs, tax-free accounts such as Roths and cash value life insurance, and taxable accounts in the form of savings and investments outside of tax-advantaged vehicles.
It's a good idea to constantly be looking at your portfolio. Retirees are not having enough corporate or municipal bonds in their portfolios. If they're in lower tax brackets in retirement, those bonds may well offer better returns after taxes than tax-free bonds.