Retirement Tax Strategies Every Lumen Employee Should Master

In today's complex financial landscape, Lumen employees nearing retirement should delve into the multiple tax implications tied to their retirement savings. A recent study by Northwestern Mutual highlights a growing focus among affluent individuals on optimizing tax strategies to maximize their retirement resources. The study found that a significant 61% of respondents with at least $1 million in investable assets have implemented plans to minimize taxes during their retirement years.

Understanding effective tax strategies is crucial for Lumen staff, especially for those who have accumulated substantial savings for retirement. The strategies favored by affluent individuals include:

1. Strategic withdrawals from traditional and Roth accounts to remain in a lower tax bracket—44% of affluent respondents utilize this method. This approach requires careful planning of the timing and size of withdrawals to manage tax levels effectively.

2. Utilizing both traditional retirement accounts and Roths—37% of participants adopt this mixed method. Roth accounts, where taxes are paid upfront rather than upon withdrawal, provide tax-free income in retirement, complementing the deferred tax benefits of traditional accounts.

3. Charitable giving—27% of respondents manage their taxes through charitable donations, employing tactics such as bunching deductions to maximize tax advantages.

4. Investing in Health Savings Accounts (HSAs) and other tax-advantaged health funds—24% benefit from HSAs, which provide tax advantages and can play a crucial role in managing healthcare expenses in later life.

5. Purchasing permanent life insurance or annuities—24% of individuals use these products not only for their primary benefits but also for their potential tax advantages. For Lumen retirees, this strategy may complement income streams such as those from the Lumen Combined Pension Plan, which offers both annuity and lump-sum distribution options, depending on individual elections and eligibility.

6. Executing Roth conversions before required minimum distributions or Social Security benefits begin—23% of respondents use this strategy to convert funds from traditional retirement accounts to Roths, managing their tax liabilities upfront and benefiting from later tax-advantaged withdrawals. This is especially valuable for Lumen employees with balances in the Lumen 401(k) Savings Plan, administered by Fidelity, which offers Roth 401(k) and traditional 401(k) components.

7. Utilizing qualified charitable distributions from individual retirement accounts (IRAs)—22% employ this method, allowing direct transfers to charities, which could potentially reduce taxes. Lumen retirees who have rolled over their 401(k) balances into IRAs can explore this strategy once they reach age 70½.

8. Contributing to tax-advantaged accounts like 529 plans for educational expenses—17% enjoy the tax benefits these plans offer. For Lumen employees with grandchildren or dependents, this provides a dual benefit: supporting education while reducing taxable income.

9. Using the paid-up basis in the cash value of permanent life insurance to stay in a lower tax bracket—19% of respondents manage their taxable income using this strategy. Lumen retirees may coordinate this with income from the Lumen Retirement Plan, particularly when choosing annuity payout options, which provide steady income.

10. Investing in qualified longevity annuity contracts (QLACs)—17% set aside funds in these insurances aiming to generate income later in life, thus avoiding current income taxes. This can be especially useful for Lumen retirees seeking to complement pension and Social Security income in their later years.

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This tax strategy is particularly relevant for Lumen employees and retirees, as it hinges on two fundamental principles: optimizing benefits from tax-advantaged accounts and strategically planning distributions to minimize taxes throughout retirement. For example, Roth accounts—like those available through the Lumen 401(k) Savings Plan’s Roth option—offer the potential for tax-free growth and tax-free withdrawals, provided certain conditions are met. This stands in contrast to traditional investment accounts and Social Security benefits, which are typically taxed upon distribution.

Moreover, many Lumen professionals are turning to Roth conversions to bypass income limits associated with Roth IRAs. In 2024, individuals earning more than $161,000 cannot contribute directly to Roth IRAs but may convert funds from traditional IRAs or the Lumen 401(k), incurring taxes upfront while securing tax-free income in retirement.

Retiree health coverage is also an important consideration. Lumen provides access to group retiree health plans through Via Benefits, allowing Medicare-eligible retirees to choose from a wide range of supplemental coverage options. The availability and cost of these benefits may differ based on union status—union employees may receive different levels of subsidy or access to specific plans compared to non-union employees.

As Lumen continues to evolve its retirement offerings, it’s essential that both current employees and retirees regularly review updates to their plans. Whether you’re navigating lump sum pension calculations, Roth conversions, or retiree medical premiums, aligning tax strategy with your Lumen retirement benefits can make a significant impact on long-term financial security.

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HSAs offer additional tax benefits, serving not only as a means to reduce current taxes through contributions but also as a method to economically manage future healthcare expenses on a tax-efficient basis. According to Fidelity, a 65-year-old will need about $165,000 to cover healthcare expenses, underscoring the importance of HSAs. After age 65, HSAs offer the flexibility to withdraw funds for any use, although non-medical withdrawals are subject to income tax.

In summary, as Lumen employees prepare for retirement, understanding and implementing these tax-reduction strategies can significantly impact their financial security and well-being in the years to come. It's crucial to be able to control taxable income and optimize financial resources through strategic planning to ensure a stable and prosperous retirement income.

One often overlooked tax reduction strategy for Lumen employees nearing retirement is investing in municipal bonds. Generally, these bonds provide tax-free interest, making them an attractive option to preserve more of one's retirement income from federal and sometimes local taxes. Given the generally lower risk profile of municipal bonds, they are a practical element in a diverse range of retirement investments, especially for higher-income individuals seeking stable, tax-favored returns. According to a  2023 Vanguard study, municipal bonds have historically offered favorable returns compared to their risk level, underscoring their utility in retirement planning strategies .