6 Tax Strategies for Retirement
Taxes are one thing retirees tend to have a little control over, as long as they do some serious planning.


Retirement requires many adjustments. Your allocation to stocks and bonds, your tolerance for risk, themanagement of your time — all might need adjustment in retirement. Tax planning is another area that needs attention.
Nationwide Retirement Institute’s recent survey found 70% of recent retirees are only “somewhatknowledgeable” or “not at all knowledgeable” about tax planning in retirement.
In your working years, often the only major tax strategy to consider is maximizing contributions to your retirement plan at work, thereby decreasing your taxable income. In retirement, there are more choices about where to pull income from and when, and those decisions can have important tax consequences.

Sign up for Kiplinger’s Free E-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.
Here are the top six tax strategies every retiree needs in retirement:
Be proactive: Tax strategy happens all year.
You need to get your financial adviser and tax professional on the same page about your income plan inretirement. That means giving them the information they need before the end of the year and as yourincome needs change throughout the year. Waiting until April 15 to start working on your tax strategy may be too late to tax optimize your retirement income plan.
Understand how Social Security is taxed.
Whether your Social Security is taxable depends on your “provisional income.” If your provisional income is less than $25,000 (for singles) or $32,000 (for married filing jointly), your Social Security is not taxable. Although that income level sounds small, it’s after deductions. Also, only half your Social Security income is counted in the calculation. Furthermore, certain income sources might not count toward the calculation. It can include income from Roth IRAs, municipal bond income and someannuity income. People with provisional incomes above those levels could be subject to taxes on up to 50% or even 85% of their benefits. Once you see where you fall on the Social Security tax spectrum, there are some steps you can consider to improve your position. Read 5 Ways to Avoid Taxes on Social Security Benefits.
Realize that cash is king, and your trust account is not far behind.
Keeping your taxable income low will help you save money on taxes. Having a withdrawal strategy thatincludes using your available cash can tax optimize your overall income picture. Also, consider your nonqualified accounts, joint account or trust accounts as income sources in retirement. Specifically, look at holdings with little appreciation that could be liquidated over time with little tax consequence.
Convert traditional IRAs to a Roth when it makes sense.
Traditional IRA and 401(k) contributions reduce your taxable income. This can lower your tax bill when your taxes are often at their highest. Withdrawals from IRAs and 401(k)s are, however, fully taxable. It’s important to think through how and when to take those withdrawals in the most tax-efficient manner.
A Roth IRA does not offer a tax deduction when you make an investment or do a conversion, but it does offer tax-free growth and tax-free income in retirement. Converting from an IRA to a Roth is a taxable event, but it positions that asset to grow tax free and be withdrawn tax free down the road.
When does it make sense to do a Roth conversion? Talk to your tax adviser every December and ask how much a conversion might cost. Converting slowly over time often makes the most sense. Converting too much at one time can put you in a higher tax bracket and be costly. A slow, long-term Roth conversion strategy can mean more long-term wealth and a more tax-efficient plan.
Manage your investments based on their tax classification.
If your investments in your Roth and your traditional IRA and your trust account are all in the same kinds of funds, you or your adviser could be doing something wrong.
- Your Roth should be the most aggressive asset in your portfolio because it grows tax free, you can pull money out tax-free in retirement and you can give it to whomever you want tax free.
- Your traditional IRA can be more actively managed because you can buy or sell positions with no tax consequence until you make a withdrawal.
- Your joint or trust account is better for more buy and hold positions — long term investments — because they get a step up in cost basis when you or your spouse passes away. A step up in cost basis means the remaining spouse can sell the individual position like a stock or an ETF and pay no taxes.
Be charitably tax smart.
If you give consistently to your church or charity, make sure you note the tax benefits of those gifts. If you are still working and are in a higher tax bracket, consider pre‐funding some of your charitable gifts to get the most out of those tax deductions in years you might need the deduction.
Consider a family foundation or your own donor advised fund to pre‐fund charitable gifts in the years you need the deductions. In retirement, when you may be in in a lower tax bracket, you might not have the same level of tax savings by making tax-deductible gifts.
Disclaimer
Investment Adviser Representative of USA Financial Securities. Member FINRA/SIPC A Registered Investment Advisor. CA license # 0G89727 https://brokercheck.finra.org/
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Scot Landborg has over 17 years of experience advising clients on retirement planning strategies. Scot is CEO and Senior Wealth Adviser for Sterling Wealth Partners. He is host of the retirement planning podcast Retire Eyes Wide Open. Scot is a regular contributor to Kiplinger.com and has been quoted in "U.S. News & World Report," Market Watch, Yahoo Finance, Nasdaq and Investopedia. He also formally hosted the nationally syndicated radio show "Smart Money Talk Radio."
-
5 Historic Philadelphia Homes for Sale Now
Philadelphia is a goldmine of historic properties that rival the best in New York, London and Paris for charm and opulence. Here are five gems you can own.
By Charlotte Gorbold
-
When to Sell Your Stock
Knowing when to sell a stock is a major decision investors must make. While there's no one correct answer, we look at some best practices here.
By Charles Lewis Sizemore, CFA
-
Within Five Years of Retirement? Five Things to Do Now
If you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
By Evan T. Beach, CFP®, AWMA®
-
The Home Stretch: Seven Essential Steps for Pre-Retirees
The decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
By Mike Dullaghan, AIF®
-
Three Options for Retirees With Concentrated Stock Positions
If a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
By Evan T. Beach, CFP®, AWMA®
-
Four Reasons It May Be Time to Shop for New Insurance
You may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS
-
Before You Invest Like a Politician, Consider This Dilemma
As apps that track congressional stock trading become more popular, investors need to take into consideration some caveats.
By Ryan K. Snover, Investment Adviser Representative
-
How to Put Together Your Personal Net Worth Statement
Now that tax season is over for most of us, it's the perfect time to organize your assets and liabilities to assess your financial wellness.
By Denise McClain, JD, CPA
-
Bouncing Back: New Tunes for Millennials Trying to Make It
Adele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
By Alvina Lo
-
Early-Stage Startup Deals: How Do Convertible Notes Work?
Some angel investors support early startups by providing a loan in exchange for a convertible note, which includes annual interest and a maturity date.
By Murat Abdrakhmanov