3 Tax-Planning Mistakes Retirees Too Often Make
Tax-cutting strategies change once you retire, and some ideas that helped while you were working no longer apply once you start taking Social Security and RMDs. Don't make these three common mistakes.
Tax planning for retirees may sound simple on the surface. Since they typically have lower incomes and fewer deductions compared with many taxpayers, they don't face such a comprehensive range of tax issues, right? Well, not exactly.
Not Considering Taxability of Social Security
Many people believe that Social Security is not taxable. This is not entirely accurate. In fact, up to 85% can be subject to income tax.
Retirees with minimal income will not pay federal taxes on their benefits. However, if they have additional income, a percentage becomes taxable. Retirees need to calculate their “provisional income” as follows:
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Take your adjusted gross income (excluding Social Security)
- Add any tax-free interest received (typically municipal bond interest)
- Add to that total 50% of your Social Security benefit
If the income is below $25,000 for single filers or $32,000 for joint filers, your benefits are all tax-free. If the provisional income is between $25,000 and $34,000 as a single filer or between $32,000 and $44,000 as a joint filer, you are taxed on up to 50% of your Social Security benefits. However, if your provisional income exceeds $34,000 as a single filer or $44,000 as a joint filer, you will be taxed on up to 85% of your benefits.
I would recommend that retirees review taxable income annually with their tax adviser to determine if any additional income impacts the taxation of Social Security. This may also put the taxpayer in a higher tax bracket. If careful planning is not completed, the result could be an unpleasant surprise come tax time.
Summary
Tax planning for retirees may not be as simple as you think. Seniors face different circumstances compared with younger taxpayers.
But with careful planning and understanding your tax situation so you can minimize your tax liability and sleep at night. Don’t fall victim to tax strategies that will cost more tax at the end of the day.
-
5 Investment Opportunities in 2026As investors game-plan for the year ahead, these five areas of the equity markets deserve their attention.
-
How Verizon’s Free Phone Deals WorkWhat shoppers need to know about eligibility, bill credits and plan costs.
-
Does Your Car Insurer Need to Know All Your Kids? Michigan Cases Raise QuestionWho you list on your policy matters more than most drivers realize, especially when it comes to who lives in your home.
-
Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?The OBBBA's permanent lower tax rates removed the urgency for Roth conversions. Retirees thinking of stopping or blindly continuing them should do this instead.
-
Worried About Retirement? 4 Tasks to Calm Your Nerves and Build Confidence, From a Retirement ProIf you're feeling shaky about your finances as you approach retirement, here are four tasks to complete that will help you focus and steady your nerves.
-
Financial Success Isn't Just About What You Save, But Who You Trust: Who's in Your Driver's Seat?For financial success in 2026, look beyond the numbers to identify the people who influence your decisions, then set them realistic expectations
-
If You're in the 2% Club and Have a Pension, the 60/40 Portfolio Could Hold You BackIncome from your pension, savings and Social Security could provide the protection bonds usually offer, freeing you up for a more growth-oriented allocation.
-
Bye-Bye, Snowbirds: Wealthy Americans Are Relocating Permanently for Retirement — and This Financial Adviser Can't Fault Their LogicWhy head south for the winter and pay for two properties when you can have a better lifestyle year-round in a less expensive state?
-
Consider These 4 Tweaks to Your 2026 Financial Plan, Courtesy of a Financial PlannerThere's never a bad time to make or review a financial plan. But recent changes to the financial landscape might make it especially important to do so now.
-
We Know You Hate Your Insurance, But Here's Why You Should Show It Some LoveSure, it's pricey, the policies are confusing, and the claims process is slow, but insurance is essentially the friend who shows up during life's worst moments.
-
Is a Caregiving Strategy — for Yourself and Others — Missing From Your Retirement Plan?Millions of people over 65 care for grandkids, adult kids or aging parents and will also need care themselves. Building a caregiving strategy is crucial.
