I'm a Financial Planner: This Is How You Can Legally Divorce the IRS for the Rest of Your Life

With some careful planning focused on the standard deduction, retirees who have large sums in tax-deferred accounts can avoid unpleasant tax bills and even part ways with the IRS for good.

By Joe F. Schmitz Jr., CFP®, ChFC®, CKA®

published 20 February 2026

in Features

Senior woman standing with arms open wide and smiling, enjoying freedom

If you know anything about me or have seen my content before, then you already know one thing about me: I hate taxes.

Now, before you get the wrong idea, let me explain. I love this country and know that taxes pay for many of the good things we enjoy and rely on, so I don't hate them completely.

But I am not confident the government is the best steward of our taxpayer dollars, especially considering our national debt.

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Also, the government can change the tax rates at any time.

If most of your wealth sits in tax-deferred accounts, such as a 401(k), IRA, 403(b) or Thrift Savings Plan, you have a silent partner in your retirement: The IRS. And you can either trust Uncle Sam to not raise taxes on you in the future, or take action now.

Why your $1 million isn't really $1 million

I was meeting with someone recently who pulled out their 401(k) statement and said, "I've finally made it. I've got a million dollars." And sure enough, right there on the page, it said $1,000,000. They felt confident and relieved that their retirement was already handled.

I then asked a simple question: "Have you paid taxes on that money yet?"

They looked at me for a second and said, "Well … no. That's all pretax."

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That's when I told them something that usually changes the whole conversation. A million dollars in your 401(k) isn't really a million dollars, at least not yet. Someday, the IRS is going to want its share.

In reality, that retirement account is a joint account. Part of it belongs to you, and part of it belongs to Uncle Sam. You just don't know exactly how much yet.

What's more, the government doesn't just get paid — it also decides how much it gets paid by changing the tax code. That means the future value of your retirement savings is unknowable unless you take action now.

Most people, like me, dislike taxes (I even wrote a book about that, called I Hate Taxes — you can request a copy here), but very few take proactive steps to reduce them. That is unfortunate, because the tax code, while massive and complex, offers opportunities for those who plan ahead.

Why retirement tax planning matters more than ever

Many retirees assume their taxes will automatically be lower once they stop working. In some cases, that's true, but for disciplined savers with large tax-deferred balances, the opposite can happen.

Required minimum distributions (RMDs), pensions, Social Security taxation, higher Medicare premiums and widowhood are all factors that can push retirees into higher tax brackets later in life.

That's why we emphasize a simple but powerful idea: It's not how much money you have in retirement — it's how much you keep.

The power of the 0% tax bracket

One of the most overlooked planning opportunities in retirement is the standard deduction. If you can structure your income carefully, it's possible to pay very little or even nothing in federal income taxes.

Many retirees do exactly that by taking only enough from their tax-deferred or taxable accounts, combined with their Social Security benefits, to keep their income below taxable levels, then using their tax-free Roth distributions to provide the rest of their needed income.

When done correctly, this allows retirees' income to "fill up" the standard deduction without crossing into taxable territory. The result? Some households with seven-figure net worths pay zero federal income tax in retirement. That's what we call being legally divorced from the IRS.

Now, if you have a pension like many of our clients, the 0% tax bracket may not be possible, but the concept of keeping your income lower in retirement is still important (if not more important) since you will likely never be in a lower tax bracket throughout retirement.

A real-world example: Two ways to take $100,000

Let's look at how strategy matters using a simplified example.

Household A:

Takes Social Security at 62, resulting in $30,000 of income
Withdraws $70,000 from an IRA
Total taxes: About $7,000
Takes $100,000, keeps $93,000

Household B:

Takes Social Security at 70, resulting in about $55,000 in income
Withdraws $22,500 from a Roth IRA
Withdraws $22,500 from an IRA
Keeps Social Security provisional income low
Keeps taxable income under the standard deduction threshold
Total taxes: $0
Takes $100,000, keeps $100,000

This is the power of "tax-efficient income planning" and understanding the impact of when you take income. Planning for this now by using Roth IRAs is a good way to give yourself greater flexibility.

Why Roth conversions can be so powerful

Roth conversions are one of the most effective tools available today, particularly given the historically low tax-rate environment we are currently in. By voluntarily paying taxes now, on your terms, you reduce the IRS' future claim on your money.

For some households, disciplined Roth planning over time can dramatically shrink future RMDs, lower Social Security taxation and create greater flexibility for large expenses, charitable giving or legacy planning. This isn't about avoiding taxes at all costs. It's about controlling them.

Too many retirement plans focus on how much income you can generate without paying enough attention to how much you actually get to keep. A $100,000 withdrawal from a traditional IRA taxed at 25% leaves you with $75,000.

The same withdrawal from a Roth leaves you with the full amount (because you already paid taxes on that money). Over a 20- or 30-year retirement, that difference can add up to hundreds of thousands of dollars.

You can either have your own tax plan, or default to the IRS' plan. For high savers approaching retirement, especially those with pensions or significant tax-deferred balances, proactive tax planning isn't optional. It's one of the most impactful decisions you'll make.

Success in retirement isn't measured by how much you have in your accounts — it's measured by how much stays in your pocket.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.