Cutting Your Tax Bill in Retirement: A Practical Guide to Keeping More of What You’ve Saved
Minimizing taxes is one of the most important—and most overlooked—parts of retirement planning. Many people spend decades saving, only to watch returns slip away because of avoidable tax decisions.
At FMD Wealth Advisors, we help retirees create coordinated strategies that lower taxes and stretch income. Here’s how you can take control.
Why Lowering Taxes in Retirement Matters
While you’re working, withholding happens automatically from each paycheck. In retirement, you decide where income comes from and when—so smart planning can make your savings last longer, give you more flexibility, and support a larger legacy for family or charities. Many retirees assume their tax bill will naturally fall, but without a plan, taxes can become one of the biggest expenses in retirement.
Practical Ways to Reduce Taxes in Retirement
1) Sequence Withdrawals Thoughtfully
How—and when—you tap accounts matters. A common approach is to draw from taxable accounts first so tax-advantaged accounts (traditional IRAs/401(k)s and Roth IRAs) keep compounding. Consider Roth conversions in lower-income years to build future tax-free income. The goal is smoother, steadier taxable income instead of big spikes.
2) Plan Ahead for Required Minimum Distributions (RMDs)
Starting at age 73 (beginning in 2023), traditional IRAs and most employer plans require RMDs, which are fully taxable and can push you into higher brackets. Tactics include:
Converting portions of pre-tax balances to Roth before RMDs begin.
Using Qualified Charitable Distributions (QCDs) from IRAs after age 70½ to satisfy part or all of your RMD without increasing taxable income.
3) Use Tax-Efficient Investments and Locations
What you own—and where you hold it—affects annual taxes.
In taxable accounts, favor tax-efficient vehicles (e.g., broadly diversified ETFs, municipal bonds where appropriate).
In tax-deferred accounts, place tax-inefficient assets (e.g., high-yield bonds or actively managed funds that distribute gains).
This pairing helps reduce taxes on interest, dividends, and capital gains each year.
4) Make Strategic Use of Roth Accounts
Qualified Roth IRA withdrawals are tax-free in retirement. Converting portions of traditional IRAs to Roth during low-income years lets you pay tax now at potentially lower rates, which can shrink lifetime taxes and give you more control over future cash flow.
5) Coordinate Social Security with Your Tax Picture
Social Security benefits can be taxable once your combined income crosses certain thresholds. Managing withdrawals and using tax-free Roth income can help limit how much of your benefit is taxed.
6) Align Charitable Giving with Tax Savings
If giving is part of your plan, consider:
QCDs (after age 70½): Donate directly from an IRA to a qualified charity; counts toward RMDs and isn’t included in taxable income.
Donor-Advised Funds (DAFs): Bunch several years of donations into one high-income year for a larger current deduction while granting gifts over time.
Frequently Asked Questions
Do retirees automatically pay less in taxes?
Not always. Without a strategy, your tax bill can stay high—or rise. Thoughtful withdrawal sequencing and account selection are key to keeping brackets in check.
Is it legal to minimize taxes in retirement?
Yes. Using the rules to your advantage—account types, timing, and charitable tools—is both legal and encouraged by the tax code.
Can I still lower taxes if I’m already retired?
Absolutely. Roth conversions, QCDs, tax-aware withdrawals, and better asset location can still make a meaningful difference after retirement begins.
Final Thoughts
Tax-smart planning can boost your spending power, extend portfolio longevity, and reduce stress. The earlier you start, the more options you’ll have—but it’s never too late to improve. If you’re unsure whether your current approach is tax-efficient, this is a great time for a professional review. FMD Wealth Advisors can help you build a retirement income plan that keeps more of what you’ve saved. Talk to us about your future. Book a Free Consultation with an Enrolled Agent here.
Disclosures: FMD Wealth Advisors LLC (“FMD Wealth Advisors”) is a Registered Investment Adviser.
This material is for general information only and is not individualized legal or tax advice. Consult your attorney and CPA regarding legal and tax matters specific to your circumstances. This content is intended to provide general information about FMD Wealth Advisors. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.
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