How to Structure Retirement Income to Tamp Down Taxes
With smart tax planning, retirees can have some control over how much of their income they'll get to keep, from Social Security to IRAs and investments.


Retirement isn’t the end but rather a new beginning, a time to enjoy the rewards of your hard work. But if you're not careful with tax planning, your life’s savings could be slowly eroded by unexpected tax liability.
Let’s explore the tax impact of common income sources and how being aware of them could help you reduce your tax bill and stretch your savings further into retirement.
Popular retirement income sources
Retirement income comes from a variety of sources, each with different tax implications. Most people find their retirement income usually includes some combination of:

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.
- Social Security benefits. Depending on your total income, up to 85% of your Social Security benefits may be taxable.
- Pension income. If you receive income from a pension, it is usually fully taxable as ordinary income.
- Traditional IRA and 401(k) withdrawals. Distributions from these accounts are generally taxed as ordinary income.
- Roth IRA and Roth 401(k) withdrawals. Qualified distributions from Roth accounts are tax-free.
- Investment income. Income from investments, such as dividends, interest and capital gains, may be subject to different tax rates.
- Required minimum distributions (RMDs). Once you reach age 73, you have to take RMDs from your traditional IRA and 401(k) accounts, which are taxed as ordinary income.
Six tax planning and mitigation strategies
1. Optimize Social Security benefits with tax efficiency in mind.
How you time your Social Security benefits often determines how much your payments will be. Waiting until 70 to claim Social Security — or at least until your full retirement age — can significantly increase your monthly payments. While you’re waiting to claim your benefit and letting it grow, you can fund your retirement expenses by drawing down funds from your IRAs and other accounts. By the time you finally file for Social Security, the account values of those assets would be smaller. That means you can potentially reduce the percentage of your Social Security benefits that are subject to taxation.
2. Plan strategic withdrawals from retirement accounts.
The order in which you withdraw funds from your various accounts can have a lasting impact on your tax bill. I often advise my clients to withdraw from taxable accounts first, then tax-deferred accounts and finally tax-free accounts (Roth IRAs). This strategy allows tax-deferred accounts to continue growing while potentially keeping you in a lower tax bracket in the earlier years of retirement.
3. Do Roth conversions.
Although taxable, converting a traditional IRA or 401(k) to a Roth IRA can be a powerful tax-planning tool because it allows for tax-free withdrawals moving forward. If you expect to be in a higher tax bracket later in retirement or if you want to reduce the impact of RMDs, a Roth conversion strategy can save you a significant amount in taxes.
4. Manage capital gains and losses.
You can manage taxable investment accounts by strategically selling investments to offset gains with losses to reduce your taxable income. Keep in mind that holding investments for more than a year before selling can qualify you for the lower long-term capital gains tax rate.
5. Consider the impact of required minimum distributions (RMDs).
To reduce RMD tax impact, consider starting withdrawals from tax-deferred accounts before you reach the age of 73. Alternatively, converting a portion of your tax-deferred accounts to a Roth IRA each year before RMDs begin can reduce future RMD amounts.
Health savings accounts (HSAs) can be a tax-efficient way to pay for health care expenses during retirement. Contributions to an HSA are tax-deductible, the funds in the account grow tax-free, and withdrawals for qualified medical expenses are also tax-free. After age 65, you can also use HSA funds for non-medical expenses, though remember that these withdrawals are taxed as ordinary income.
6. Make charitable contributions tax-efficiently.
Charitable giving can not only be an altruistic and philanthropic practice but also a key tax-saving part of your financial plan. Consider using a qualified charitable distribution (QCD) to transfer up to $108,000 (the limit in 2025) directly from your IRA to a charity, satisfying your RMD without increasing your taxable income.
The bottom line
Effective tax planning in retirement is essential for preserving your wealth and ensuring a secure and comfortable retirement. By understanding the tax implications of your income sources and implementing strategic withdrawal and investment strategies, you can minimize your tax burden and make your savings last longer.
Remember, tax planning doesn’t end once you retire. Changes in tax law as well as life changes, such as selling a home or getting an inheritance, can affect your tax situation. Start planning early and revisit your plan regularly to adapt to changes in your financial situation.
Related Content
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.
Rick Barnett is the Founder and CEO of Barnett Financial & Tax, a 35-year-old comprehensive financial advisory firm covering all aspects of Investment, Income, Tax and Estate Planning. Rick and his team serve clients in Michigan, North Carolina and several other states. Rick hosted the “Barnett Financial Hour,” broadcast on numerous radio stations over a seven-year span and has shared financial expertise on ABC, CBS, NBC and Fox 66 News networks. His genuine passion lies in educating people, having conducted hundreds of financial education programs through his organization, Financial Leadership University.
-
Nvidia Stock's Been Growing for Years. Just Look At Its 100,000% Return
Nvidia shareholders have had to stomach intense volatility over the years, but they have come out on top thanks to the AI chipmaker's bellwether status.
By Louis Navellier Published
-
The 'Concerning Trends' in Retirement Now
Americans are less satisfied with their life in retirement and cite inflation and higher healthcare costs as just two of the problems they're facing.
By Janet Bodnar Published
-
Nvidia Stock's Been Growing for Years. Just Look At Its 100,000% Return
Nvidia shareholders have had to stomach intense volatility over the years, but they have come out on top thanks to the AI chipmaker's bellwether status.
By Louis Navellier Published
-
The 'Concerning Trends' in Retirement Now
Americans are less satisfied with their life in retirement and cite inflation and higher healthcare costs as just two of the problems they're facing.
By Janet Bodnar Published
-
What Trump Has Done With Social Security So Far
Since President Trump was sworn into office on January 20, he has proposed or initiated changes impacting how Social Security functions, including closing offices and offering buyouts. Here's a roundup.
By Kathryn Pomroy Published
-
What Trump Has Done With Medicare So Far
Since President Trump was sworn into office on January 20, he has proposed or initiated changes impacting Medicare. Here's a roundup.
By Kathryn Pomroy Published
-
10 Tax Topics Every Retiree Should Know About
A little knowledge can go a long way toward saving on your tax bill. Print this out and take it to your tax planner so you can have a productive chat.
By Michael Miller Published
-
It's No Surprise That Berkshire Hathaway's in the 100,000% Return Club
Warren Buffett's fascination with the insurance industry has helped Berkshire Hathaway's stock return snowball.
By Louis Navellier Published
-
4 Turnaround Stocks to Consider – and 2 More to Keep an Eye On
A turnaround stock is a struggling company with a strong makeover plan that can pay off for intrepid investors.
By Nellie S. Huang Published
-
Retire in Italy for Culture and Beauty
U.S. citizens retire in Italy for a lifestyle of abundance. If you love history, gastronomy, art and natural beauty, Italy almost always does it better.
By Brian O'Connell Published