Stretch Your Retirement Savings with Multi-Year Tax Planning
The years approaching retirement are rich with opportunities for those who can carefully fill their income "buckets" to just the right level.


As people wind down their careers and begin picturing what retirement will look like, it’s important that they consider a few big questions. Where will their income come from? How will taxes affect their cash flow? And how do they determine what asset drawdown strategy makes the most sense for their unique financial situation?
While the specifics of tax law change from year to year, we recently saw large-scale change to the tax code that impacted the majority of Americans. The passage of the Tax Cuts and Jobs Act (TJCA) in late 2017 resulted in many financial planning opportunities. As soon as the law passed, my firm began meeting with clients to identify opportunities to apply the new rules to their unique situations for asset drawdown. As a CPA and financial planner, it is second nature for me to overlay multiyear tax planning onto clients’ short-term and long-term financial goals. After all, what matters is your cash flow after tax — not before. It’s the net, not the gross that you will live on in retirement.
When applying the new tax rules to retirement planning, you may find opportunities with the newly created tax brackets. With roughly similar income levels, if you were in the 28% tax bracket in 2017, you might be in the 24% bracket now. If you were in the 25% bracket last year, you might be at 22% now. To maximize this new opportunity, you have to be proactive and develop a plan.
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Bring on the buckets
I ask my clients to think of multiyear tax planning as a row of empty buckets, with each bucket representing one year. Our goal is to keep the amount of “income” that you put into each bucket level from year to year. If you put too much in one year, you might be climbing into a higher bracket and paying more tax. If you put too little in another bucket, you’re not taking full advantage of all the money that can go into the lower tax bracket for that year.
Each individual situation is unique, so one person may need to try to keep their bucket average at the middle while another may need to keep the average closer to the top. The goal is to strategically plan to take money out of tax-deferred accounts while you’re are in a lower tax bracket — even if you don’t plan to spend it. Or, by delaying Social Security, we create a low bucket year and an opportunity to use the lower tax brackets. By doing this right, you should be able to knock at least a few percentage points off your tax rate as mentioned above, and occasionally much more.
Be ready to make adjustments
To execute this move correctly, it is best to plan ahead and be cautious, as your tax scenario will likely evolve. If you believe the current tax brackets are the lowest you will have for a few years, then make your decision based on that. I do this for my clients by running projections that lay out their tax bracket for each year — specifically noting which income bracket they are most likely to fall into. Opportunities for planning along these lines have always existed, but with the lower brackets that came out of the TJCA, they can now be even more advantageous.
A strategy to consider
For those who are in the process of transitioning out of work into retirement, this is a great strategy to consider. When my clients are in their last year of work, we max out their 401(k) to save 22%-37% on tax deferral and then the next year convert to a Roth IRA or simply take money out of the retirement account. By doing this before taking money from a pension or from Social Security, they remain in a lower tax bracket. And by working this into a financial plan where we also bunch charitable contributions and strategically decide when to bunch any elective surgeries, they stand to save even more.
This is beneficial, even with the standard deduction for a married couple now at $24,400, because by bunching itemized deductions of mortgage interest, taxes, charitable contributions and potentially medical expenses, you may be able to go beyond that higher threshold, which will save additional tax.
Generally, the rule is to delay taking money out of tax-deferred accounts like IRAs so that the tax-deferred earnings can grow longer, but the tax benefit of making strategic withdrawals can more than offset this general rule in the right situation. There are some caveats to this strategy. At age 70½, you must begin taking the required minimum distribution (RMD) from your IRA. And deferring Social Security past 70 is essentially leaving money on the table, so that is not advantageous.
If you are managing this process for yourself, it’s best to err on the side of caution. For someone new to this strategy, I would caution them to be careful not to defer so much income into your age 70 year that you create a higher tax bracket for yourself down the road. Also, keep in mind that higher income can mean higher Medicare costs.
The time may be right
It is important to remember that your personal situation is fluid, and so is tax law. While this strategy worked in the past, today’s lower tax brackets have provided some taxpayers with an additional opportunity to fill their bucket with additional lower bracket income. However, with the current tax brackets set to revert back to pre-2018 law at the end of 2025, now is a good time to see if this strategy works for you.
For the reasons listed above it is often best to work with a professional, such as a CPA financial planner, who is well versed in taxes and can walk you through multiple scenarios and develop a strategy that will lead to you paying the lowest tax rate possible on income in your golden years.
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After years as a partner in a CPA firm, David Stolz started a new firm, Stolz and Associates, PS, to focus on working with people to help them clarify their current and future finances. Having a plan helps people to relax and focus more on the things that are important to them. Stolz still gets excited listening to people talk about their future plans, and helping them create a plan to accomplish them.
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