When most people think about planning for retirement, they tend to focus on one number: “How much do I need saved?” But there’s a second question that often matters just as much: “How much of what I’ve saved will I actually keep after taxes?”
In reality, taxes don’t disappear when you go from your working years into retirement. In many cases, they will actually become more complex. Between Social Security, Required Minimum Distributions (RMDs), investment income, and potential healthcare costs, retirees can unknowingly drift into higher tax brackets than expected.
This might sound like mostly bad news. However, here is the good news: there are several practical, low-risk strategies that have the potential to reduce your tax burden over time. None of these are based on aggrieve tactics, complex loopholes, or an ultra-high net worth. Everything that we will discuss simply centers around thoughtful, strategic income planning.
Below, we will highlight a few of the most effective approaches available for retirees:
1. Diversify Your Tax Buckets
One of the most overlooked strategies is also one of the most powerful: having a mix of different account types.
Most retirees accumulate the majority of their savings in pre-tax accounts like 401(k)s, 403(b)s, or traditional IRAs. While these accounts provide great tax deferral during your working years, every dollar withdrawn in retirement is taxed as ordinary income.
A more balanced approach includes:
- Pre-tax accounts (401(k), traditional IRA)
- Tax-free accounts (Roth IRA, Roth 401(k))
- Taxable brokerage accounts (individual, joint, or trust accounts)
Why does this matter?
Because it gives you flexibility. Instead of being forced to take all your income from taxable sources, you can strategically pull from different “buckets” each year to stay within a lower tax bracket.
Example:
If you need $80,000 of income, you might take $50,000 from a traditional IRA and $30,000 from a Roth account. That could keep you in a lower tax bracket than taking the full $80,000 from a pre-tax account.
This kind of flexibility becomes incredibly valuable over a 20–30 year retirement.
2. Be Intentional With Roth Conversions
A Roth conversion allows you to move money from a pre-tax account into a Roth account, paying taxes today in exchange for tax-free growth and withdrawals in the future.
At first glance, paying taxes today when you have the option to defer them further might seem counterintuitive.
But in the right years when your income will be lower, it can be one of the most effective ways to reduce lifetime taxes.
The key is timing.
Some of the best opportunities for Roth conversions include:
- Early retirement years before Social Security begins
- Years with unusually low income
- Before Required Minimum Distributions start
During these windows, you may be in a lower tax bracket than you will be later in retirement. Converting funds at a lower rate today can prevent higher taxes down the road.
Important note: This isn’t about converting everything at once. It’s about gradually “filling up” lower tax brackets over time. Converting large enough amounts in one year could actually cause you to have a higher tax rate than you would have had if you waited until Required Minimum Distribution age (more on that below).
3. Manage Required Minimum Distributions (RMDs)
Once you reach age 73, the IRS requires you to begin taking withdrawals from most pre-tax retirement accounts. These Required Minimum Distributions (RMDs) are fully taxable, but the amount of your balance that you are required to draw on increases every year for the rest of your life.
For many retirees, RMDs are what push them into higher tax brackets later in life.
There are a few ways to manage this:
- Start withdrawals earlier: Taking smaller distributions in your 60s can reduce the size of future RMDs.
- Use Roth conversions strategically: As mentioned above, this reduces your future pre-tax balance. A Roth conversion is taxed as ordinary income just like an IRA distribution.
- Consider Qualified Charitable Distributions (QCDs): If you’re charitably inclined, you can donate directly from your IRA, which may reduce your taxable income.
The goal here is not to entirely get rid of RMDs. This process is designed to project future tax brackets and rates to help avoid jumping up a bracket, increasing Social Security taxes, or triggering IRMAA. The latter two topics are discussed in more detail below.
4. Pay Attention to Social Security Taxation
Many people are surprised to learn that Social Security benefits can be taxable, and the amount that is taxed will depend on your other income sources.
Up to 85% of your benefits may be subject to federal income tax depending on what is called your Provisional Income. We won’t cover how to calculate provisional income in this article, but this figure includes adding your Social Security benefits up along with other income sources such as earned income, interest and dividends, and IRA distributions.
This is where planning really matters.
By carefully controlling where your income comes from, you may be able to reduce how much of your benefit is taxed. This is especially important in the years immediately before and after you begin claiming benefits.
Example:
Pulling income from a Roth IRA instead of a traditional IRA may help keep your provisional income lower, potentially reducing the taxability of your Social Security benefits.
Small adjustments can make a meaningful difference over time.
5. Use Tax-Efficient Withdrawal Strategies
Income planning is designed not designed specifically around what you withdraw. More importantly, it is about looking at how and when these withdrawals are made.
A common mistake is withdrawing from accounts in a fixed order (e.g., always taking from taxable accounts first, then tax-deferred, then Roth). While simple, this approach isn’t always tax-efficient.
Instead, a more dynamic strategy can help:
- In lower-income years, draw more from pre-tax accounts
- In higher-income years, lean more on Roth or taxable accounts
- Be mindful of tax bracket and IRMAA thresholds each year
This approach allows you to smooth out your taxable income over time, rather than spiking it in certain years.
6. Don’t Overlook Capital Gains Planning
If you have investments in a taxable brokerage account, long-term capital gains are often taxed at lower rates than ordinary income. If you are married filing jointly and have taxable income under $98,900 in 2026, your federal capital gains rate is 0% (this number is $49,450 for those filing single).
This creates an opportunity.
By carefully realizing gains in years when your income is lower, you may be able to:
- Rebalance your portfolio and lower exposure to concentrated positions
- Reduce future tax exposure
- Potentially pay little to no tax on those gains
This is especially useful in early retirement before other income sources (like RMDs) begin.
7. Coordinate With Medicare and IRMAA
Taxes can certainly impact your income, and they can also affect your healthcare costs.
Medicare premiums are based on your income from two years prior. Higher income can trigger what’s called IRMAA (Income-Related Monthly Adjustment Amount), increasing your premiums.
This means a large Roth conversion or capital gain in one year could lead to higher Medicare costs later.
That doesn’t mean you should avoid these strategies, but it does mean they should be planned carefully and coordinated with your broader tax strategy.
Bringing It All Together
Reducing taxes in retirement isn’t about finding a secret strategy or loophole. It’s about making a series of thoughtful, coordinated decisions over time.
The most effective plans typically:
- Create flexibility across different account types
- Take advantage of lower tax brackets when available
- Avoid large spikes in taxable income
- Adapt as laws and personal circumstances change
These strategies create changes that might seem minor in the year that they begin; however, when compounded over years or possibly decades of your life, these decisions can completely alter your retirement picture. That is why it is never too early to begin thinking about your retirement, tax, and income plans.
Key Takeaways
- Taxes don’t go away in retirement. Instead, they often become more complex
- Having multiple tax buckets gives you flexibility and control
- Roth conversions can be powerful when done strategically
- Managing RMDs early can prevent higher taxes later
- Small, consistent decisions can significantly reduce lifetime taxes
If there’s one theme that runs through all of this, it’s intentionality. The difference between an efficient retirement income plan and a costly one often comes down to proactive planning.
For many investors, this is an area where a second opinion or a coordinated strategy can uncover opportunities that might otherwise be missed. If you haven’t mapped out where you will take income from every year, or how that will impact your taxes, we’re here to help.
Matt J Black,CFP®, AAMS®
mblack@larsonfs.com
913-428-2233