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Three Ways to Cut Your Tax Bill Before Retirement

Tax plays a big role in your financial life as you approach retirement. CNBC's Sharon Epperson talks about three steps to lighten your tax load before you retire.
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A lot can change in your financial life as you approach retirement—and taxes play a big role.

Many Americans who are nearing retirement have a narrow window to take advantage of unique tax opportunities. Here are three tax-cutting moves to make before you embark on your golden years.

Diversify your assets

If you're close to retirement, do what you can to estimate how much money you'll need your investments to generate in retirement. From there, you can reallocate assets to achieve that potential amount of retirement income. You'll not only want to determine what types of vehicles to invest in, but also where to put those investments—whether in taxable or tax-advantaged accounts like traditional and Roth 401(k)s and IRAs.

Try to max out contributions into pretax retirement plans like a 401(k) or 403(b). In 2015, the limits are a little higher at $18,000, or $24,000 for contributors over age 50.

Defer your income

Most likely, you'll be in a lower tax bracket once you reach retirement. As you get closer to retirement, defer any income you can. This may include putting off the sale of your home, withdrawals from your IRA or annuity cash-outs until you're actually retired and in a lower tax bracket.

"You can save on your taxes by waiting until you're in a post-retirement low tax bracket," said Elda Di Re, a partner at Ernst & Young. The savings from such deferrals can potentially add up to thousands of dollars.

Tax benefits now, charitable giving later

Think about increasing your charitable contributions. Donating assets that have appreciated over time can help pre-retirees avoid capital-gains taxes while also helping a worthy cause. "We hear very consistently that it's an important element of their financial planning," said Fidelity Investments' Kathleen Murphy, who oversees $1.7 trillion in assets as president of the firm's personal investing business.

It's also possible to increase the tax benefits today and delay the actual gift until a later time by making a charitable contribution to what's known as a donor-advised fund. Begin by projecting how much you'd like to give over the course of 10 years or longer, then transfer that amount into the fund, which will allow you to get an immediate tax deduction on the donation today, when it's most advantageous (since you're likely in a higher tax bracket).

From there, you can make decisions on how, when and where you want your donations to be distributed.