Overview
Paying less tax in retirement doesn’t mean avoiding taxes—it means planning withdrawals so that more of your savings stays in your pocket. The right mix of account choices, timing, and tax tools can lower lifetime taxes, reduce Required Minimum Distributions (RMD) shocks, and protect benefits like Medicare and Social Security. This article explains practical, IRS-aligned strategies and real-world steps to minimize taxes on retirement withdrawals.
(References: IRS retirement pages and rules: https://www.irs.gov/retirement-plans)
Key strategies that work
1) Use Roth accounts and staged Roth conversions
Why it helps: Qualified distributions from Roth IRAs and Roth 401(k)s are tax-free, so moving money into Roths ahead of retirement removes that balance from future taxable distributions. Converting strategically over several years can keep you in lower tax brackets and avoid spikes in Medicare premiums or Social Security taxation.
How to apply it: Convert only the amount that fits under your target marginal tax bracket each year. Avoid large, one-time conversions unless you have a low-income year. Consider a multi-year conversion plan to smooth taxable income (see our guide on creating a conversion plan for step-by-step examples: How to Create a Roth Conversion Plan Over Several Years).
Tax notes: Roth conversions are taxable as ordinary income in the year of conversion. They do not count as earned income for IRA contribution eligibility. (IRS: Roth IRAs: https://www.irs.gov/retirement-plans/roth-iras)
Internal links: For basics, see Roth Conversion Basics: Who Should Consider It? and our detailed conversion planning article (linked above).
2) Manage taxable income and tax brackets annually
Why it helps: Federal income tax is progressive. Withdrawing only what you need to stay in a lower marginal bracket can save thousands over time. Also watch how withdrawals affect the taxation of Social Security and Medicare premiums (IRMAA).
How to apply it:
- Build a retirement cash-flow plan projecting Social Security, pension, RMDs, capital gains, and taxable account withdrawals.
- Fill up lower tax brackets with Roth conversions or qualified dividends/cap gains in low-income years.
- Use tax-loss harvesting in taxable accounts to offset gains (consult a tax pro).
Rules to watch: Social Security up to 85% can be taxable depending on combined income. Medicare Part B/D IRMAA surcharges are tied to modified adjusted gross income (MAGI) two years before billing; large conversions can trigger higher premiums (see our guide on timing conversions around Medicare: Roth Conversions and Medicare: Timing to Avoid IRMAA Surprises).
(SSA/CMS and IRS references: https://www.ssa.gov/planners/taxes.html; https://www.cms.gov)
3) Follow a tax-efficient withdrawal order (tailor to you)
Common starting framework:
- Taxable accounts (capital gains/losses) — gives flexibility and tax-loss harvesting opportunities.
- Tax-deferred accounts (Traditional IRA/401(k)) — taxable as ordinary income.
- Tax-free accounts (Roth IRAs/401(k)s) — used for longevity or large, late-life expenses.
Why sequence matters: Using taxable accounts first can let tax-deferred money continue tax-deferred growth, delaying large RMDs. But if you expect higher tax rates later or want to shrink RMDs, partial Roth conversions earlier may be preferable.
4) Use Qualified Charitable Distributions (QCDs)
What they are: QCDs allow IRA owners age 70½ and older (rules may be updated; verify current age thresholds with the IRS) to transfer up to $100,000 per year directly to qualified charities. QCDs count toward RMDs and are excluded from taxable income.
Why it helps: If you’re charitably inclined and don’t need IRA distributions for living expenses, QCDs reduce taxable income and your RMD balance, which can lower future tax brackets and Medicare IRMAA exposure. (IRS: QCD rules and Pub 590-B)
5) Delay Social Security strategically
Why it helps: Delaying Social Security up to age 70 increases monthly benefits and may let you withdraw more from tax-deferred accounts at lower tax rates in your early retirement years. Delaying also increases your widow(er) benefit for a surviving spouse.
How to combine: If you have enough savings to delay, use taxable accounts or Roth withdrawals first to bridge income. Re-evaluate after taking Social Security since your taxable income and benefits mix changes.
6) Mind state taxes and residency planning
State income tax can materially change effective tax rates on distributions. Retirement-friendly state residency or timing moves (establish domicile in a no-income-tax state before taking large distributions or conversions) can reduce state tax on retirement income.
Action step: Compare state tax rules for pensions, Social Security, and IRAs before making major withdrawals or conversions.
7) Coordinate with required minimum distributions (RMDs)
Current rule snapshot (as of 2025): Required minimum distributions apply to most tax-deferred retirement accounts. The RMD starting age rose to 73 under SECURE Act 2.0 for many people; future increases to age 75 are scheduled under current law for later cohorts. Penalties for missed RMDs were reduced under SECURE Act 2.0 but still apply—correct mistakes promptly with IRS Form 5329 and reasonable cause procedures. Always check the IRS RMD page for the latest thresholds and calculations: https://www.irs.gov/retirement-plans/required-minimum-distributions-rmds
Practical tip: Use partial Roth conversions before RMDs begin to lower future taxable RMDs. Keep conversion sums small enough to avoid pushing you into higher tax brackets.
Practical planning steps — a checklist
- Run a five- to ten-year cash-flow model showing income sources, estimated RMDs, and tax brackets.
- Identify low-income years (e.g., early retirement before RMDs and before claiming Social Security) to perform Roth conversions.
- Decide on withdrawal sequencing for your taxable and tax-advantaged accounts.
- Use QCDs if charitable and eligible.
- Consult a CPA or CFP® on state tax moves and Medicare IRMAA effects for conversion timing.
- Revisit the plan annually and after major life or tax-law changes.
Common mistakes to avoid
- Making large Roth conversions without checking IRMAA or Social Security tax consequences.
- Ignoring state tax impacts when moving or taking distributions.
- Letting RMDs arrive unexpectedly because of poor planning—this can spike taxable income.
- Treating all retirement accounts the same; each has different tax rules and opportunities.
Short case example
A 65-year-old retires and delays Social Security to 70. During the five-year gap they:
- Use taxable savings for living costs first, letting tax-deferred accounts grow.
- Perform modest Roth conversions in two low-income years to fill the 12% bracket and reduce future RMDs.
- After turning 73, take smaller RMDs because part of the IRA balance was moved to Roth, lowering taxable income and saving on Medicare IRMAA surcharges.
This staged approach can reduce lifetime taxes and protect benefits.
When to work with a professional
Tax rules change and small choices (a single-year large conversion, moving states, or timing QCDs) can have outsized effects. Work with a CPA or fee-only financial planner to model scenarios, prepare tax returns correctly, and file the right IRS forms (for example, Form 8606 for nondeductible IRAs and Roth conversions).
FAQ (brief)
Q: Will Roth conversions always lower my taxes?
A: Not always. Conversions raise taxable income in the conversion year, so they help long-term if tax rates or your future taxable income would otherwise be higher than the conversion-year rate.
Q: Are QCDs still useful after SECURE 2.0?
A: Yes. QCDs remain a tax-efficient way to meet charitable goals and reduce taxable RMDs. Check current age and limits with the IRS.
Q: How do I avoid IRMAA surprises from conversions?
A: Convert in smaller chunks, coordinate with Medicare enrollment timelines, and run MAGI projections for the years tied to IRMAA assessments.
Resources and authoritative references
- IRS — Required Minimum Distributions (RMDs): https://www.irs.gov/retirement-plans/required-minimum-distributions-rmds
- IRS — Roth IRAs: https://www.irs.gov/retirement-plans/roth-iras
- IRS — Publication 590-B (Distributions from Individual Retirement Arrangements)
- Social Security Administration — Taxation of Benefits: https://www.ssa.gov/planners/taxes.html
- Consumer Financial Protection Bureau — Retirement planning resources: https://www.consumerfinance.gov/
Internal FinHelp guides:
- How to Create a Roth Conversion Plan Over Several Years: https://finhelp.io/glossary/how-to-create-a-roth-conversion-plan-over-several-years/
- Roth Conversion Basics: Who Should Consider It?: https://finhelp.io/glossary/roth-conversion-basics-who-should-consider-it/
- Roth Conversions and Medicare: Timing to Avoid IRMAA Surprises: https://finhelp.io/glossary/roth-conversions-and-medicare-timing-to-avoid-irmaa-surprises/
Professional disclaimer
This article is educational and does not constitute individualized tax or investment advice. Tax laws change and outcomes depend on your situation—consult a licensed CPA or a certified financial planner before acting.
By combining Roth conversions, tax-aware withdrawal sequencing, QCDs, and careful timing around Social Security and Medicare, many retirees can substantially reduce taxes on withdrawals. Implement changes gradually, document decisions, and update the plan each year.
