You may have read this article in Kiplinger’s online magazine, in which I explain how to earn maximum tax advantages from your investment in income annuities. I republish it here, slightly modified.
Like most taxpayers, I am a fan of legally minimizing your income taxes. But I think — if you are retired or about to retire — you should concentrate less on minimizing taxes and more about increasing after-tax spendable income and your financial legacy to heirs. Sounds like a non-sequitur, but it isn’t.
As an example, you could invest your entire savings in high-quality intermediate-term municipal bonds and pay no taxes on interest earnings. But you would earn something like 2.5% (or $25,000 on $1 million in bonds) in annual income. Wouldn’t it be an improvement if you paid some taxes and generated an income stream equal to, say, 6% after taxes?More