Ease the Tax Bite When You Tap Retirement Accounts
Savvy retirees tap retirement accounts with a tax plan. Each type of account may have different tax rules and rates, so know before withdrawing funds.


A key part of retirement planning is knowing how to tap retirement accounts without running up a huge tax bill. Retirement brings so many questions. Should we ditch the house and buy a condo? Will we need a part-time job? And even more importantly, how can I wring as much tax savings as possible from my retirement funds? Here are four tax-saving tips for retirement savings.
Let’s start with the basics.
You have lots of investment options when you save for retirement: Stocks, bonds, cash, precious metals — even cryptocurrency. What matters to Uncle Sam is what type of account you use for your retirement savings. You can save for retirement with taxable accounts, such as garden-variety bank or brokerage accounts. You can also save with tax-deferred accounts via individual retirement accounts (IRAs) or 401(k) savings accounts. In addition, you can save in Roth IRAs and Roth 401(k)s. Many people have a mix of taxable accounts, tax-deferred accounts and Roth accounts.

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Each type of account — taxable, tax-deferred, and Roth — has its own tax rules. Let’s start with taxable accounts.
Tap retirement accounts: start with taxable accounts
Interest from taxable accounts is taxed at ordinary income tax rates. For the 2025 tax year, the top tax is 37% of taxable income above $626,350 for individuals and $751,600 for married couples filing jointly. Here’s how the income tax brackets break down.
Tax Rate | For Single Filers | For Married filing Joint Returns |
10% | $0 to $11,925 | $0 to $23,850 |
12% | $11,925 to $48,475 | $23,850 to $96,950 |
22% | $48,475 to $103,350 | $96,950 to $206,700 |
24% | $103,350 to $197,300 | $206,700 to $394,600 |
32% | $197,300 to $250,525 | $394,600 to $501,050 |
35% | $250,525 to $626,350 | $501,050 to $751,600 |
37% | $626,350 or more | $751,600 or more |
Source: Tax Foundation
Related from Kiplinger: 2024 and 2025 Federal Tax Brackets and Income Tax Rates.
You're not taxed at the maximum rate for every cent of your income. You reduce your gross income by the standard deduction of $15,000 for individuals and $30,000 for joint returns. Those over 65 and single receive an additional standard deduction of $2,000; for married couples, the extra standard deduction will be $1,600 per qualifying spouse over 65. A married couple under 65 that earned $100,000 and had only the standard deduction would have a taxable income of $70,000.
U.S. tax rates are graduated. Consider the married couple with $70,000 in taxable income. They would pay 10% tax on their income up to $23,850 and 12% on income up to $70,000.
Cash is a good place to start. “Your first source of [retirement] funds should be the money in your checking account,” says Christine Benz, director of personal finance and retirement planning for Morningstar and author of How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. After all, you’d only owe tax on the interest for the year it’s paid to you. For example, if you earned $2,000 in interest on a $50,000 savings account, you’d only owe taxes on $2,000.
And remember, capital gains are your friend. Stocks and most mutual fund shares in taxable accounts are taxed at a maximum of 20% if you have held them for at least one year. If you’ve held your stocks for less than a year, you’ll owe ordinary income taxes on your gains. Qualified dividends from stocks you’ve held for at least a year are taxed at a maximum of 20% as well. If you haven’t held those stocks for a year, your dividends are taxed at your regular income tax rate.
For most people, long-term capital gains (and dividends) are taxed at a much lower rate than ordinary income. As with income taxes, long-term capital gains taxes are graduated. If you’re a married couple who earned $50,000 in long-term capital gains and had no other income, you’d pay no taxes.
Tax rate | Single returns | Joint returns |
0% | $0 | $0 |
15% | $48,350 | $96,700 |
20% | $533,400 | $600,050 |
Source: Tax Foundation.
Related from Kiplinger: Capital Gains Tax Rates for 2024 and 2025
Some taxpayers with high modified adjusted gross incomes ($250,000 for married couples) pay an additional 3.8% tax on their net investment income.
Another big advantage for stocks is tax-loss harvesting: You can use capital losses to offset capital gains. If you have more losses than gains, you can deduct from gains up to $3,000 of losses in the current tax year. If you have losses greater than $3,000, you can carry forward those losses into the next tax year.
Tax-deferred accounts
Don’t be horrified by the tax bite on traditional IRA withdrawals. You’ll have more money in your account than you would otherwise. IRAs, 401(k)s and other tax-deferred accounts help you save for retirement. If you want to invest $5,000 in a taxable account and you’re in the 22% tax bracket, you’ll have $3,900 after taxes to invest. A tax-deferred account lets you invest the entire $5,000 and defer taxes until retirement.
Furthermore, you defer taxes on your investments until you withdraw them in retirement, which helps boost your rate of return. If you were in the 22% tax bracket in a fully taxable account earning 4% a year, your rate of return would fall to 3.1% after taxes. In a traditional tax-deferred account, you’d earn the full 4% a year.
Still, you have to pay taxes on your withdrawals. This is not welcome news to most retirees, particularly if your withdrawals push you into a higher tax bracket. Moreover, you must take required minimum distributions (RMD) when you turn 73, which may push you into an even higher tax bracket. Nevertheless, assuming equal investment returns, you likely will have more money in your tax-deferred account than your taxable account. A Morningstar study found that a one-time investment of $5,000 in a tax-deferred account earning 8% would become $108,623 after 40 years, while a taxable account earning the same rate of return would become $84,726.
If you’re charitably inclined and have to take RMDs from your account, you can donate up to $105,000 to charity tax-free. “It’s an extraordinary opportunity, and it will lower your RMDs in the future,” says Gary Schatsky, a New York financial planner.
You can take some comfort that U.S tax rates are near historic lows. “Always pay taxes at the lowest rate,” says IRA expert Ed Slott. However, those low tax rates may not last long, given the government’s huge deficits.
Tax-preferred accounts
Converting a traditional IRA to a Roth is a good idea — sometimes. Because withdrawals from tax-deferred accounts can cost so much in taxes, Roth IRAs are extremely popular. Although you can’t deduct your contributions, if you’re 59½ or older and you have had your Roth for at least five years, your distributions are free from state and federal income taxes. You can take out your principal at any time — after all, you’ve already paid taxes on that money. Furthermore, there are no RMDs on Roth IRAs.
The good news: You can convert a traditional IRA to a Roth. But it doesn’t always make sense. Do the math first.
When you convert from a traditional IRA to a Roth, you’ll owe taxes on the amount you convert. Let’s say you have a $100,000 traditional IRA, you’re in the 33% tax bracket, and you convert the whole thing to a Roth. Ideally, you have enough money in other accounts to pay the $33,000 tax bill. Otherwise, in order to get your account back to $100,000, you have to earn 49% to get back even — no easy task.
Secondly, the five-year waiting period may apply to the conversion. If you are younger than 59½ and withdraw before the five-year waiting period is over, you’ll owe a 10% penalty. One big exception; If you’re 59½ or older when you make the withdrawal from a converted IRA, the five-year holding period doesn’t apply and you won’t owe the 10% penalty. If you are over age 59½, the five-year holding period still applies to tax earnings in the Roth IRA. But if you do not meet the five-year holding period, at least no 10% penalty applies.
Finally, that $100,000 conversion will be considered taxable income, which will almost certainly put you into a higher income tax bracket and could also raise your Medicare premiums, at least temporarily.
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.
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