Tax-Smart Retirement Planning: Keep More of What You’ve Saved

You’ve spent years building your retirement savings—now it’s time to make sure you keep as much of it as possible.

One of the biggest risks to your retirement nest egg? Taxes. Without careful planning, taxes can quietly chip away at your income, reduce the efficiency of your withdrawals, and even trigger unexpected costs.

The good news? With a tax-smart strategy, you can minimize what you owe and make your savings last longer. Here’s how to approach retirement income with taxes in mind—so you can enjoy more of what you’ve worked so hard to build.

1. Understand the Tax Buckets: How Your Savings Are Taxed

Different types of retirement accounts are taxed in different ways. Knowing which “bucket” your money lives in helps you plan smarter withdrawals.

Tax-deferred (Traditional 401(k), IRA, etc.):

• You contributed pre-tax dollars

• Grows tax-deferred

• Taxed as ordinary income when withdrawn

Tax-free (Roth 401(k), Roth IRA):

• Contributions made with after-tax dollars

• Grows tax-free

• Withdrawals are tax-free in retirement (if qualified)

Taxable accounts (brokerage, savings):

• Funded with after-tax dollars

• Taxed annually on dividends, interest, and capital gains

➡ Tip: A smart withdrawal plan balances these buckets to help reduce your overall tax bill and preserve flexibility.

2. Roth Conversions: Pay Taxes Now to Save Later

A Roth conversion allows you to move money from a traditional IRA or 401(k) into a Roth IRA—paying taxes now so your future withdrawals can be tax-free.

Why consider a Roth conversion?

• You expect to be in a higher tax bracket later

• You want to reduce future Required Minimum Distributions (RMDs)

• You’re in a low-income or low-tax year (e.g., early retirement before RMDs begin)

Watch out for:

• The amount converted is taxed as ordinary income

• A large conversion can bump you into a higher tax bracket or impact Medicare premiums

➡ Tip: Consider partial conversions over multiple years to spread the tax impact.

3. Required Minimum Distributions (RMDs): Don’t Be Surprised

Once you reach age 73 (rising to 75 in coming years depending on your birth year), the IRS requires you to begin taking RMDs from your tax-deferred accounts—even if you don’t need the income.

And yes, they’re taxable.

Why this matters:

• Large RMDs can push you into a higher tax bracket

• They can impact your Medicare premiums (IRMAA surcharges)

• Unused RMDs can’t be rolled over or left alone—you must take them

➡ Tip: Start planning for RMDs in your early 60s. Consider Roth conversions, qualified charitable distributions (QCDs), or rebalancing to reduce future liability.

4. Build a Tax-Efficient Withdrawal Strategy

When you retire, how you withdraw matters just as much as how much you withdraw.

A thoughtful withdrawal strategy can help you:

• Reduce taxes in the short and long term

• Smooth out income across tax years

• Avoid unnecessary penalties or surcharges

A common tax-smart approach:

1. Draw from taxable accounts first (to take advantage of lower capital gains rates)

2. Then tax-deferred accounts (as needed or to meet RMDs)

3. Save Roth accounts for last (to allow tax-free growth as long as possible)

➡ Tip: Everyone’s situation is unique. A professional can help you model your withdrawals based on your tax bracket, lifestyle needs, and goals.

5. Don’t Forget About Medicare and Taxes

Medicare premiums are based on your modified adjusted gross income (MAGI)—and unexpected income (like large RMDs or Roth conversions) can increase your costs.

➡ Tip: Watch your income thresholds carefully. Planning withdrawals or conversions over several years can help you avoid Medicare surcharges.

6. Coordinate With Your Tax Professional and Advisor

Tax-smart retirement planning isn’t a one-time event—it’s a long-term strategy. Make sure your financial advisor and tax preparer are on the same page to:

• Strategize your withdrawals

• Time conversions or capital gains

• Plan for charitable giving in a tax-advantaged way

• Review your annual income projections and make adjustments as needed

➡ Tip: A coordinated team can help you uncover opportunities and avoid costly mistakes.

Final Thoughts

Taxes in retirement are complex—but with the right strategy, they’re manageable.

By being proactive with Roth conversions, understanding RMD rules, and designing a withdrawal plan that works for your situation, you can reduce your tax burden and stretch your savings further.

After all, it’s not just about how much you save for retirement—it’s about how much you keep.