Contributed by: Matt Trujillo, CFP®
You've spent decades building your nest egg—now it's time to enjoy it. But without the right tax strategies, Uncle Sam could take a bigger bite out of your retirement income than you expected. The good news? With some thoughtful planning, you can minimize your tax burden and make your savings last longer. Below are key strategies to help protect your retirement income from unnecessary taxation.
1. Understand Your Tax Bracket in Retirement
Most retirees assume their tax rate will drop, but that's not always the case. Required Minimum Distributions (RMDs), Social Security, pensions, and investment income can all push you into a higher bracket than you planned. Know your projected income sources and work with a tax professional to estimate your future tax brackets.
2. Use Tax Diversification in Your Accounts
Ideally, your retirement savings should be spread across three types of accounts:
Tax-deferred (Traditional IRA, 401(k)): taxed when withdrawn.
Tax-free (Roth IRA, Roth 401(k)): tax-free withdrawals if rules are followed.
Taxable brokerage accounts: taxed annually on dividends and capital gains.
This mix gives you the flexibility to manage income and control tax exposure each year.
3. Delay Social Security (If You Can)
Delaying Social Security benefits until age 70 increases your monthly payout and can reduce the number of years your benefits are taxed. Since up to 85% of Social Security benefits can be taxable depending on other income, using withdrawals from tax-free or low-tax sources early on can help keep those benefits tax-efficient later.
4. Use Roth Conversions Strategically
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay tax now at current rates, but future withdrawals are tax-free. This strategy is particularly powerful in years when your income is temporarily lower—such as early retirement before RMDs start at age 73 (for those turning 72 after 2022).
Tip: Be careful not to trigger a higher tax bracket or affect Medicare premiums (IRMAA surcharges) when doing a conversion.
5. Withdraw in a Tax-Efficient Order
Here's a general rule of thumb (though personal situations vary):
Withdraw from taxable accounts first (use capital gains rates if favorable).
Then tax-deferred accounts (IRA, 401(k), subject to ordinary income tax).
Save Roth accounts for last, allowing them to grow tax-free as long as possible.
This approach helps manage taxes today while preserving long-term tax-advantaged growth.
6. Manage RMDs Carefully
Once you hit RMD age, you must begin taking minimum distributions from your traditional retirement accounts, which are taxed as ordinary income. Failure to take RMDs results in severe penalties. Strategies to reduce future RMDs include:
Roth conversions before RMD age.
Qualified Charitable Distributions (QCDs), which let you donate up to $100,000 per year directly to charity tax-free.
7. Take Advantage of the Standard Deduction and Tax Credits
In retirement, many people itemize less and rely on the standard deduction, which increases with age (currently higher for taxpayers 65+). Smart timing of deductions or capital gains can help you stay under taxable thresholds. Also, check for available tax credits, such as the Credit for the Elderly or Disabled.
8. Be Aware of State Taxes
State taxes can significantly impact your retirement income. Some states tax Social Security, pensions, or IRA withdrawals, while others (like Florida, Texas, or Nevada) have no state income tax. If you're planning a move in retirement, consider the state's tax treatment of retirees as part of your decision.
Taxes don't stop when your paychecks do, but with the proper planning, you can keep more of your hard-earned retirement savings. Whether you're just starting retirement or already enjoying it, work with a financial advisor or tax professional to tailor a strategy that fits your goals, lifestyle, and income needs.
Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72.