For many people, retirement brings many advantages—more free time, fewer responsibilities, and more time for family and hobbies. Unfortunately, taxes can remain a constant burden even after you’ve left the workforce.
Working with your financial advisor to develop a strong retirement plan can make a significant difference in your retirement income, potentially saving you thousands of dollars each year and helping you preserve more of your hard-earned savings for what truly matters.
Following are eight important considerations for pre-retirees and topics to discuss with your financial advisor to help mitigate taxes in the golden years.
1. Tax Strategies for Retirement Income
If you have multiple retirement accounts, understanding which accounts to withdraw from and when can get complex. This is why it’s best to consult with a professional on the right strategy to help minimize taxes for your specific financial situation.
Typically, many people withdraw from taxable accounts first, then tax-deferred accounts (such as a traditional IRA or 401(k)), then tax-free accounts (Roth IRA). However, there are situations where a different withdrawal sequence could make sense. For example, if you are a single client in your early 60s with low income and a large traditional IRA balance, it could make sense to withdraw from the traditional IRAs instead of taxable accounts to start drawing down the tax-deferred balance while income is low and before RMDs begin.
And of course, Roth conversions can make sense for many investors who have large traditional IRA balances. Careful analysis is typically required to determine the optimal approach on an annual basis and to coordinate with other distributions and tax planning strategies.
2. Planning for RMDs
RMDs can be a silent tax killer in retirement. Tax-deferred retirement accounts require mandatory withdrawals once you reach a certain age—73 for those born between 1951-59, and 75 for those born after 1960. These withdrawals are fully taxable, and failing to take them triggers a substantial 25% penalty.
RMDs are calculated based on account balance and age, with required withdrawals increasing as you age. Without proper planning, these distributions can create significant tax burdens in your later retirement years. Typically, the “golden window” to do this planning is at retirement and when income is low (before Social Security and RMD income kicks in).
3. Avoiding the Widow’s Penalty
Many couples benefit from the Married Filing Jointly tax filing status, which offers favorable tax brackets (except at the highest level). However, after a spouse’s death, the survivor must file as Single, which uses tax rates that are roughly half the taxable income of the Married Filing Jointly bracket. In addition, the change of filing status to Single cuts the standard deduction in half (from $32,200 to $16,100 in 2026) and also reduces key income thresholds.
Any of these changes alone can be damaging, but taken together, these tax adjustments typically push the surviving spouse into a higher tax bracket, or at least significantly higher in the current tax bracket. Consequently, the surviving partner may end up with about a 10% increase in the annual tax rate and higher Medicare premiums.
4. Social Security Impacts on Taxes
Many are surprised to learn that their Social Security benefits can be subject to federal taxes depending on their income. The portion of your benefits that may be taxable varies, since it depends on your income.
Married couples filing jointly with income between $32,000 and $44,000 may owe taxes on up to 50% of Social Security benefits. When income exceeds $44,000, the taxable portion increases to as much as 85% of benefits.
It’s also a common misconception that tax rules for Social Security apply only to retirement benefits. But benefits from Social Security trust funds, including survivor and disability benefits, are subject to tax rules. However, Supplemental Security Income (SSI) payments are not taxable.
5. Healthcare Costs and Deductions
Healthcare costs, especially as you age, can easily become significant and unexpected expenses. Thankfully, some healthcare costs qualify for deductions if they exceed 7.5% of your adjusted gross income. Look into and keep track of your expenses throughout the year to see if you can utilize these tax deductions.
It’s also important to keep Medicare IRMAA (Income-Related Monthly Adjustment Amount) surcharges in mind if you are Medicare age (or close to Medicare age). This is because the surcharge will increase Medicare Part B and Part D premiums depending on your Modified Adjusted Gross Income (MAGI) reported on your tax return from two years prior (i.e., the surcharge for 2026 is based on your 2024 MAGI). This is a cliff tax, which means being even $1 into the next MAGI tier could potentially cost you thousands in extra surcharges.
6. Not All Investments Are Taxed the Same
Withdrawals from traditional IRA or 401(k) are taxed as ordinary income, while profits from selling stock or real estate are taxed based on the lower capital gains tax rates (typically 15% or 20% for most retirees). Then we have Roth IRAs, where qualified distributions can be completely tax-free if you’re at least 59½ years old and have held the account for at least five years.
In a volatile market, tax-loss trading can be a way to bring welcome tax benefits. And be aware of carryforward losses, which can help offset unrealized gains that are in portfolios. And when doing tax-loss trading, do not run afoul of the wash sale rule, which requires a 30-day period before buying back the security.
7. State Income Taxes
State taxes can play a significant role for retirees. It’s important to understand every state’s tax code structure, as not every state follows the federal law. This is where a good advisor leveraging research tools can be of assistance, as they can model out the exact tax burden of living in one state over another.
Many people consider relocating in retirement to be closer to family, experience better weather, or benefit from lower cost of living. Some states may impose no state income tax whatsoever, like Florida, Texas, and Nevada. Others, like California, may impose substantial rates ranging across different brackets. And regarding estate planning, 18 states or jurisdictions have some form of state inheritance or estate tax, so it can benefit you to work with an advisor who is aware of your situation.
8. Estate Planning Strategies to Consider
Tax planning and estate planning work together to help save you money on taxes when transferring wealth. Planning early can help find solutions that will help reduce taxes to beneficiaries and ensure the right documentation is in place.
Many Americans won’t face federal estate taxes, since the first $15 million is exempt. However, the landscape can always change as new legislation is introduced and current legislation expires. Additionally, popular wealth transfer strategies like GRATs and family limited partnerships face ongoing legislative scrutiny. Thus, if you could be at risk with a lowered lifetime exclusion, then you should be discussing strategies NOW with your advisor and an estate planning attorney.
Never Too Early to Start Planning
Planning effectively for retirement is a multi-year and multi-layer process. Indeed, lifetime income taxes are typically some of the most significant expenses that retirees face and may be your most significant expense in retirement.
While these considerations provide important context and considerations, we believe partnering with a qualified financial and tax professional is the best way to develop personalized strategies for you and your family. Our goal is to keep your money working for you so you can enjoy the retirement you’ve worked so hard to achieve.
Debra Taylor is not affiliated with Cetera Wealth Services LLC. Any information provided by this individual is provided entirely on behalf of CWM, LLC and is in no way related to Cetera Wealth Services LLC or its registered representatives.
This article is not intended to provide specific legal, tax or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Converting from a traditional IRA to a Roth IRA is a taxable event.
9084278.1-0926-C
