I'm a Financial Planner: This Is the Crucial Tax Planning Difference That Can Help Save Your Retirement Nest Egg
Shifting from reactive, once-a-year tax preparation to proactive, lifetime tax planning can help you strategically time Roth conversions and avoid Social Security taxes or Medicare surcharges.
Have you ever noticed that many people only talk about working on their taxes in late winter or early spring during what's traditionally referred to as "tax season"?
I feel that's when everybody seems to be looking for tips on how to lower their annual tax bill or even get a refund (or they head to their local tax preparer with a pile of paperwork and hope for the best).
But I believe taxes aren't a once-a-year problem — not when you're working and definitely not in retirement.
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To help minimize your tax burden, I think you need a plan, one that looks well beyond the year that's just gone by and lays the groundwork for many years ahead.
The difference between tax preparation and tax planning
A tax preparation service or software may provide you with strategies that can help you lower your future taxes. But its main job is to complete your return with the information you provide.
The focus of those strategies is on reporting what already happened and getting you to the best place they can with that current return.
Tax planning, on the other hand, is about looking for ways to lower taxes over your lifetime, so there aren't any surprises, especially when you reach retirement.
Many retirees expect lower taxes once they stop working, but that may be a risky assumption. Your income plan — likely a combination of Social Security and pension payments, investment earnings and portfolio withdrawals — could trigger bigger tax bills in retirement.
Knowing where taxes can hide and carefully managing your tax bracket can help protect what you've worked so hard to save and help make your nest egg last longer.
Here are some moves to consider toward accomplishing that.
Using an income lull to do a Roth conversion
If you've been putting most of your savings into a traditional IRA, 401(k) or similar tax-deferred retirement account, converting a portion of those funds to a Roth IRA could go a long way toward helping minimize future tax bills.
I think this is especially important for when required minimum distributions (RMDs) kick in at age 73 (or 75 if you were born in 1960 or later).
But you'll want to be careful about how the timing of that conversion could affect your tax bracket.
One way to help minimize the impact is to consider converting in years when you expect your income to be lower.
For many savers, I find that sweet spot is in the year or years after they first retire, before they claim their Social Security benefits, or have to take RMDs.
You may find other opportunities that also could work well — for example, during a year in which you have high health care costs or other tax-deductible expenses that could offset the cost of the conversion.
Creating a tax allocation plan
Many people have an asset allocation plan that lays out the percentage of stocks, bonds, cash and other investments in their portfolio mix.
In my experience, far fewer have a "tax allocation plan" to help guide them as they withdraw money from their taxable, tax-deferred and tax-exempt accounts in retirement.
I believe that knowing where you'll take your money from, and when you'll take it, is critical to a successful retirement plan. You may have to make some adjustments from year to year, but I think winging it is not the way to go if you want to avoid exposing your income to higher tax rates.
You might not see a single year in which you get a giant refund check — but that's not the goal. The goal is to smooth out your income so you're minimizing taxes over your lifetime.
Avoiding hidden tax traps
I think one of the most important parts of tax planning is education. It's difficult to prepare for a problem you don't see coming. Some common tax traps that can catch retirees off guard include:
Taxes on Social Security. Taxpayers receiving Social Security benefits are often unaware that they may have to pay federal income taxes on a portion of those benefits — up to 85%, based on their income and filing status.
Though the One Big Beautiful Bill Act, passed in 2025, provides a new $6,000 bonus tax deduction for those age 65 and older, it does not eliminate the tax on Social Security benefits.
That bonus deduction is temporary; it will be available only through 2028. Also, it phases out at certain income levels.
The Medicare surcharge. Medicare's income-related monthly adjustment amount (IRMAA) can more than triple Part B premiums for high-income retirees. And the IRMAA is based on a sliding scale that looks at your income from two years earlier, which can be a shock for new retirees.
Capital gains tax. Selling your business or some other highly appreciated asset (your home, a valuable collection, artwork, etc.) could result in your having to pay taxes on the realized gain.
There are multiple strategies that may help minimize this tax burden (including tax-loss harvesting and charitable giving strategies), but these moves require advance planning.
Making a major purchase. Retirees often overlook how a large purchase might affect their annual income tax bill. Withdrawing a significant amount from tax-deferred savings to pay for a new car, a family vacation or other major expense could push you into a higher tax bracket and bring about a higher tax bill.
Passing along the problem. Without planning, a generous gift can become a tax burden for loved ones. Using trusts, exemptions and other tax-efficient strategies can help preserve your assets for heirs.
The bottom line
I believe the sooner you can put together a long-term tax plan — one that will help minimize taxes over your lifetime and eliminate surprises down the road — the better.
If your financial professional isn't willing or able to talk with you about shifting from reactive tax reporting to proactive planning, it may be time to consider seeking a second opinion.
A retirement specialist with tax-planning expertise can help you evaluate the benefits of various tax strategies, run projections based on your individual needs, coordinate your tax plan with your overall financial plan and help make adjustments when necessary.
This is complex stuff, but it can help preserve your nest egg, so don't hesitate to ask for help.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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