Retirement Tax Planning Strategies
The Tax Landscape in Retirement
Understand how retirement income is taxed
Many retirees are surprised to learn how complex retirement taxes can be. Different types of income are taxed in different ways—traditional IRA or 401(k) withdrawals are taxed as ordinary income, while investments from brokerage accounts may be taxed at capital gains rates. In addition, up to 85% of your Social Security benefits can become taxable depending on your income level. Without proper planning, you may pay more in taxes than necessary—impacting your overall retirement lifestyle.
RMDs and Withdrawal Sequencing
Manage income and taxes by planning when and where to draw
Beginning at age 73 (per current federal law), you must take Required Minimum Distributions (RMDs) from most retirement accounts. These distributions can push you into a higher tax bracket if not planned for properly. Our team helps you determine the most tax-efficient withdrawal order—balancing distributions from taxable, tax-deferred, and Roth accounts—to help reduce your lifetime tax burden.
- Taxable Accounts First: Often used early in retirement to allow tax-deferred assets to continue growing.
- Tax-Deferred Next: IRAs and 401(k)s are tapped strategically to control annual tax liability.
- Roth Accounts Last: These are preserved when possible for tax-free growth and legacy purposes.
- Customized Sequencing:
Every withdrawal plan is personalized based on your projected income and tax brackets.
This approach helps smooth income over time, manage Medicare premiums, and reduce the impact of future RMDs.
Roth Conversions
Convert today to reduce taxes later
Roth conversions can be a powerful tool for long-term tax planning, especially in the early years of retirement when income may be lower. Converting portions of your traditional IRA or 401(k) to a Roth account allows for future tax-free growth and eliminates RMDs on those funds. However, conversions do trigger current-year taxes—so timing is everything. We help evaluate the right amount to convert, when to convert, and how it fits into your broader retirement plan.
Social Security & Medicare Impact
Income planning goes beyond just taxes
Taxes aren’t the only consideration in retirement. Your income also affects your Medicare premiums (through IRMAA brackets) and how much of your Social Security is taxable. Drawing too much from certain accounts in a single year can result in higher healthcare costs or a surprising tax bill. Our advisors monitor your income trajectory and help plan withdrawals and conversions that keep you below critical thresholds—so you retain more of your benefits.
State Taxes & Relocation
Retirement tax strategy varies by where you live
Where you retire can have a significant effect on your tax situation. For example, North Carolina does not tax Social Security income and has a flat income tax rate, while Virginia partially taxes Social Security and has a graduated income tax system. If you’re considering relocating in retirement—or already live near a state border—we help you factor in state-level tax differences and identify how to structure income for your location.
