Tax Planning in Retirement: Strategies to Keep More of Your Money

When you think about retirement, you might picture relaxing days, travel, or time with loved ones. But there’s one thing that can quietly chip away at your savings if you're not careful: taxes. Without proper planning, your retirement income can be taxed in ways that reduce what you actually get to spend.

In this guide, we’ll walk through smart retirement tax strategies to help you reduce your retirement tax rate and keep more of your money.

Why Retirement Tax Planning Matters

Retirement doesn’t mean a tax-free life. In fact, many retirees are surprised to learn that Social Security benefits, traditional IRA withdrawals, and even pension income can be taxable.

That’s why retirement tax planning is so important. With the right strategy, you can potentially:

• Lower your overall tax bill

• Minimize taxes on withdrawals

• Stretch your savings further

• Avoid surprises when tax season rolls around

Whether you’re already retired or preparing for it, there are ways to better position your income to potentially reduce your tax burden.

Want to see how this fits into a full retirement plan? Learn about Sage Hills Financial’s retirement planning approach.

Key Strategies to Potentially Reduce Taxes in Retirement

Here are some of the most effective ways to potentially reduce taxes in retirement:

1. Mix Pre-Tax and Roth Accounts

Having a combination of traditional (pre-tax) and Roth (after-tax) retirement accounts gives you flexibility. You can pull income from different sources depending on your tax situation each year.

• Traditional accounts: IRA*, 401(k) – taxed on withdrawal

• Roth accounts: Roth IRA, Roth 401(k) – tax-free qualified withdrawals

Strategy tip: During low-income years, consider converting** traditional IRA funds to Roth to reduce taxable income in future years.

*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax in addition to current income tax.

**Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

2. Time Your Withdrawals Carefully

Start drawing down from different accounts in a tax-efficient order:

• Use taxable accounts first (dividends, capital gains)

• Then tax-deferred accounts (IRAs, 401(k)s)

• Save Roth accounts for last (no taxes on qualified withdrawals)

This approach can help reduce how much Social Security is taxed and lower your overall retirement tax rate.

3. Watch for Required Minimum Distributions (RMDs)

Starting at age 73 (for most retirees), you must begin taking RMDs from traditional IRAs and 401(k)s, even if you don’t need the income. These are taxed as ordinary income.

Strategy tip: If you don’t need the income, consider Qualified Charitable Distributions (QCDs) to donate up to $100,000 per year directly to charity without increasing your taxable income.

4. Stay Ahead of Medicare Premium Surprises

Higher income can trigger increased Medicare Part B and D premiums. This is known as IRMAA (Income-Related Monthly Adjustment Amount).

Strategy tip: Be strategic with Roth conversions and large withdrawals to avoid pushing your income above premium thresholds.

How to Potentially Reduce Taxes in Retirement: A Summary

Here’s a quick summary of the most effective ways to potentially reduce your tax burden:

Strategy	Tax Benefit
Roth conversions	Reduce future taxable income
Tax-efficient withdrawals	Minimize tax owed on income
QCDs from IRAs	Lower taxable income while giving to charity
Asset location	Optimize which accounts hold stocks vs. bonds
Timing income	Avoid crossing tax brackets or Medicare thresholds

Retirement Tax Planning: Why It Pays to Work With a Pro

Tax planning in retirement isn’t one-size-fits-all. The most suitable strategy depends on your income sources, savings mix, and goals. Working with a financial planner aims to ensure your plan considers taxes, cash flow, and longevity.

Need help creating a tax-smart retirement plan? Schedule your free consultation.

Disclaimer: We Are Not Tax Advisors

While we provide guidance on tax saving strategies, it's important to clarify that our financial advisor is not a tax advisor or tax preparer. Tax laws are complex and constantly changing, and individual circumstances vary. We strongly recommend that you consult a qualified tax professional for specific tax advice tailored to your unique situation.

Content in this material is for general information only and not intended to promote specific advice or recommendations for any individual. No strategy assures success or protects against loss.