Update on COVID-19

Finance of America Reverse LLC (“FAR”) understands you may be facing unique hardships during this difficult time. Many borrowers who are currently experiencing financial distress related to COVID-19 may be eligible for some type of assistance. Please contact us for information regarding options that may be available to you. If you are impacted by COVID-19, please call 866-654-0020 and have your loan number ready for the Customer Service representative.

Close This Alert

One thing is certain in life – taxes. Even in retirement, taxes will be a factor in your income planning.


If you haven’t retired yet, then this may be a surprise to you. The funds you take out of your 401(k) and IRA will be taxed along with any capital gains and dividends you achieve from investment accounts. You may even be taxed on your Social Security benefits.


Luckily, there are certain steps you can take to reduce your tax bill in retirement.


Take advantage of a Roth IRA

If you still have time before you retire, start putting your money into a Roth IRA. This is similar to a traditional IRA, but instead of deducting contributions now and paying taxes on withdrawals later, with Roth IRA, you pay taxes on contributions up front and get tax-free withdrawals later. The money you earn in the account will also tax-free in retirement. You can convert your traditional IRA into a Roth IRA, but you generally pay income tax on the contributions.


Manage the timing of your account withdrawals

If you are already retired, then you should consider managing when you withdraw from retirement accounts. If your portfolio includes a 401(k), a traditional IRA, and/or a Roth IRA, then it can make a big difference as to when you withdraw from each account.


As mentioned above, withdrawals from traditional IRA and 401(k) are taxable so if you happen to be in a high tax bracket one year, you should consider withdrawing your living expenses from your Roth IRA account so that the income isn’t taxed at the higher tax bracket rates. Conversely, if you have low-income years, you should consider withdrawing from your traditional IRA and 401(k) accounts because the income will be taxed based on a lower tax bracket.


Qualified charitable distributions

When preparing for retirement, take advantage of tax benefits form charitable gift donations. Taking a Qualified Charitable Distribution (QCD) from your IRA could potentially yield the best tax savings on a charitable contribution. Be aware that taking the standard deduction on your taxes will prevent you from deducting charitable gifts so make sure to consult the guidelines.


You can make a charitable contribution up to $100,000 from your IRA and the amount will be excluded with a QCD. This will also count toward your required minimum distribution. The age requirement for a QCD is 70.5 years old.


It’s important not to overlook taxes in retirement. Take advantage of qualified charitable donations, managing your account withdrawals, and use a Roth IRA, you could potentially maintain a lower tax bracket. Reducing your monthly expenses is huge when you are on a fixed retirement income down the line. Know the tax rules and consult a professional to find out how they can help with your retirement plan.

This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.