How can the Tax Cuts and Jobs Act save you money in retirement?

The standard deduction for a married couple went from $12,700 in 2017 to $24,000 in 2018. A couple we know retired this year, and their names are Janet and Kyle, and they’re 62 years old. Janet and Kyle have some money in savings, plus some investment accounts, and of course they have a couple of big fat IRA accounts that they rolled their 401(k) accounts into when they retired. For at least a few years Janet and Kyle will be paying bills from their savings accounts and from liquidating long-term investments in order to minimize their tax bill, because anything that comes out of their IRAs is taxed as regular old income. 

At age 70 ½ everyone has to start taking “required minimum distributions” from their IRAs, and at that point it’s pretty much impossible to avoid paying income tax on that money, however, using the new standard deduction amount there is a way to avoid some of that tax. Here’s how Janet and Kyle do it.

For year 2019 their taxable income will be close to zero. That means they have $24,400 of “room” from the standard deduction they can use to shield themselves from taxes. How? By moving money from IRAs to savings accounts they will reduce the amount of required minimum distributions they will have to take in the future.