Retirement is supposed to be your golden years - a time to relax and enjoy the fruits of your labor. But for many, it turns into a financial minefield, especially when it comes to taxes. Many retirees assume their taxes will drop once they stop working. The truth is, taxes don’t retire when you do, and without the right plan, you can be paying more in taxes than you did when you were working!
In this post, I’ll walk you through 10 strategies that will reduce the amount of tax you owe in your retirement so that you can make the most of your hard-earned money!
10 Strategies to Cut Your Taxes in Retirement
Roth Conversions
One of the most powerful tools we use with our clients is Roth conversions. Here’s how it works: You take money from a traditional IRA or 401(k), pay taxes on it now, and move it into a Roth IRA. The beauty of this strategy is that once the money is in the Roth, it continues to grow tax-free, and you won’t owe taxes on withdrawals in retirement.
The key is to do this during years when your income is lower - like early retirement, before Required Minimum Distributions (RMDs) kick in. That way, you can convert at a lower tax rate and avoid a bigger tax bill later.
For example, if you convert $50,000 from a traditional IRA to a Roth IRA during a low-income year, you might pay 12% in taxes now instead of 22% later when RMDs kick in.
However, there are important considerations you need to know:
Converting too much at once can push you into a higher tax bracket, which defeats the purpose. That’s why we often use software to model conversions over several years to optimize tax savings.
Roth IRAs have a 5-year rule for withdrawals of converted funds. If you withdraw the converted amount before 5 years, you may face penalties.
Roth conversions can increase your modified adjusted gross income, which could lead to higher Medicare Part B and D premiums
I’ve seen Roth conversions save clients thousands of dollars over time, and it’s something we always consider when building a retirement plan.
Tax Diversification
Another strategy we emphasize with our clients is tax diversification. This means having a mix of taxable, tax-deferred, and tax-free accounts. For example, you might have a traditional IRA (tax-deferred), a Roth IRA (tax-free), and a brokerage account (taxable).
Why does this matter? Because it gives you flexibility when planning withdrawals. In retirement, you can choose which accounts to withdraw from based on your tax situation each year. For instance, if you’re in a lower tax bracket one year, you might pull more from your traditional IRA. If you’re in a higher bracket, you might rely more on your Roth IRA or brokerage account.
Think of it like having different buckets of money. Some buckets are taxed now, some later, and some never. The right mix gives you more control over your tax situation.
We’ve had clients tell us this strategy feels like having a “tax toolbox” - they can pick the right tool for the job, depending on the year.
Strategic Withdrawals
When it comes to withdrawals, timing is everything. One of the things we help our clients with is creating a withdrawal strategy that minimizes their tax burden. The goal is simple: pull from the right accounts at the right time to keep more money in your pocket.
For example, you might start by withdrawing from taxable accounts first. This allows your tax-deferred accounts, like traditional IRAs or 401(k)s, to continue growing untouched for as long as possible. By delaying withdrawals from these accounts, you can minimize the tax hit and let your savings compound over time.
Timing is also critical when it comes to managing your tax brackets.
In years when your income is lower - perhaps during early retirement or after a market downturn - you might withdraw more from tax-deferred accounts to take advantage of lower tax rates. In higher-income years, you might lean on Roth IRA withdrawals since they don't count as taxable income, helping you avoid higher tax brackets, Social Security taxes, or Medicare IRMAA surcharges, which increase premiums for higher-income retirees.
Tax-Loss and Tax-Gain Harvesting
If you have investments in a taxable brokerage account, tax-loss harvesting and tax-gain harvesting can be powerful tools to manage your tax bill.
With tax-loss harvesting, you sell an investment at a loss and use that loss to offset capital gains - or even up to $3,000 of ordinary income. It’s like cleaning out your garden. You pull out the weeds - the underperforming investments - and use them to fertilize your gains, reducing your overall tax bill. Just be mindful of the wash-sale rule, which prevents you from claiming a loss if you repurchase the same or a substantially identical investment within 30 days.
On the flip side, tax-gain harvesting involves selling investments that have appreciated in value, but only up to the point where you stay within the 0% long-term capital gains tax bracket. For example, in 2025, if your taxable income is below $48,350 if single or $96,700 if married filing jointly, you could pay 0% on long-term capital gains.
We’ve helped clients use both strategies to lower their tax bill while rebalancing their portfolio. It’s all about being proactive and making the tax code work for you.
Maximize Deductions and Credits
One of the simplest ways to lower your taxes is to make sure you’re taking advantage of all available deductions and credits. And yet, many retirees leave money on the table each year because they overlook these opportunities.
For example:
If your medical expenses exceed 7.5% of your adjusted gross income, you may be able to deduct them.
If you’re still working part-time, you might qualify for the Saver’s Credit by contributing to a retirement account.
And don’t forget about the Credit for the Elderly or Disabled
This is one of those “low-hanging fruit” strategies that can make a big difference. And remember, every deduction you miss is more money going to the IRS instead of staying with you.
Lifetime Gifts
Another strategy we often discuss with clients is lifetime gifting. If you have loved ones in a lower tax bracket, you can gift income-producing assets - like stocks, bonds, or rental properties - to them.
Here’s why this works: The recipient will pay taxes on the income at their lower tax rate, which can save your family money overall. Plus, you can give up to the annual gift tax exclusion amount ($19,000 per recipient in 2025) without triggering gift taxes or needing to file a gift tax return.
Imagine you gift $19,000 to each of your three grandchildren. That’s $57,000 removed from your taxable estate in a single year - all without triggering gift taxes. This strategy lets you share your wealth with loved ones while reducing your family’s overall tax burden.
Charitable Giving
If you’re charitably inclined, there are several ways to give back while also reducing your taxes. One powerful option is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $108,000 in 2025 directly from your IRA to a qualified charity. This counts toward your RMD but isn’t included in your taxable income. It’s a win-win: you support causes you care about while reducing your tax bill.
Another option is to set up a Charitable Remainder Trust (CRT). With a CRT, you donate assets to the trust, receive a tax deduction, and the trust pays you income for a set period. After that, the remaining assets go to your chosen charity.
You could also consider a Donor-Advised Fund (DAF), which allows you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to charities over time. This strategy can be particularly useful if you don’t itemize deductions every year.
By bunching multiple years’ worth of charitable donations into one year, you can surpass the standard deduction and maximize your tax benefit, while still giving to your favorite charities over time. For example, instead of donating $15,000 every year, you could contribute $45,000 every three years. This way, you itemize deductions in the year of the contribution and take the standard deduction in the other years, saving significantly on taxes.
We have clients who’ve used DAFs to support causes they care about while also lowering their taxable income. It’s a meaningful way to give back and save on taxes at the same time. Plus, you get the flexibility to make donations on your schedule while still capturing the tax deduction now.
Plan for the Widow’s Penalty
The Widow’s Penalty can hit surviving spouses hard, often resulting in a much larger tax burden than expected. This happens because, after losing a spouse, the surviving partner must transition from filing jointly to filing as a single taxpayer. This shift can lead to higher tax rates, reduced deductions, and a larger portion of Social Security benefits being taxed. That’s why we work closely with our clients to plan ahead and minimize the impact of this penalty
For example, we might recommend converting more to a Roth IRA during the couple’s lifetime to reduce future RMDs. Or, we might suggest setting up a trust to help manage taxes after one spouse passes away.
We often ask clients, “What kind of tax situation do you want your spouse to face if something happens to you first?”
This kind of planning can give couples peace of mind, knowing they’ve taken steps to protect the surviving spouse from a hefty tax bill.
Utilize Health Savings Accounts (HSAs)
If you have an HSA from your working years or access to one now, it can be a powerful tool for reducing taxes in retirement. HSAs offer a unique triple tax advantage:
Contributions are tax-deductible,
Growth is tax-free, and
Withdrawals are tax-free when used for qualified medical expenses.
The real magic happens in retirement when healthcare costs tend to rise. You can use HSA funds for medical expenses like Medicare premiums, long-term care costs, or prescription drugs – all without increasing your taxable income. And after age 65, you can use the funds for non-medical expenses without penalty, though withdrawals for non-medical purposes will be taxed as ordinary income, similar to a traditional IRA.
Many retirees use HSAs as a supplemental retirement account, saving thousands in taxes while ensuring they’re prepared for healthcare costs down the road.
Manage Provisional Income to Reduce Social Security Taxes
Up to 85% of Social Security benefits can be taxed, depending on your provisional income. Provisional income includes:
Half of your Social Security benefits, plus
Income from wages, investments, plus
Tax-exempt interest.
By strategically managing withdrawals from different account types, you can reduce the amount of your benefits subject to tax.
Here are a few ways to keep your provisional income in check:
Delay Social Security: By waiting until full retirement age (or later), you can reduce the amount of provisional income you report in earlier retirement years, giving you more control over taxable income
Draw from Roth IRAs. Roth withdrawals don’t count toward provisional income, so tapping these accounts strategically can help you stay below key income thresholds.
Be strategic with distributions from tax-deferred accounts like Traditional IRAs or 401(k)s to avoid crossing into higher tax brackets and triggering more taxes on your Social Security benefits.
This strategy is especially important for retirees who rely heavily on Social Security, as even small adjustments can lead to a noticeable increase in after-tax income.
Final Thoughts
Cutting taxes in retirement is critical, but it’s just one part of the picture. Many people assume that their taxes will automatically drop when they stop working - but that’s not always true. In fact, there are 10 reasons why retirement taxes might surprise you and be higher than you expect. In that post, I break down these reasons and explain how to avoid being caught off guard.
If you'd like to talk with us about minimizing your taxes and see which strategy can be applied to, feel free to schedule a complimentary meeting.
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