The five strategies that do the most work in retirement tax planning: managing which accounts you draw from and in what order; converting traditional IRA assets to Roth during low-income years; keeping Social Security benefits partially or fully untaxed; reducing required minimum distributions before they begin; and using HSAs, qualified charitable distributions, and tax-loss harvesting to lower taxable income year by year. Everything else is execution.
Retirement tax planning is different from tax planning while you’re working. No employer withholds anything, so paying taxes in retirement becomes your job. You choose which accounts to draw from, when, and how much. Those choices determine your tax bill. Get them right, and you can keep tens of thousands of dollars over a 20- or 30-year retirement.
Taxes Often Get More Complicated After Retirement
Most retirees pay less in taxes than they did while working. Many still pay more than they expect.
The reason: retirement income comes from several sources, each taxed differently. You’re now managing the bill yourself instead of having it withheld. The average American household paid roughly $13,900 a year in personal income taxes in 2023, the most recent year with complete federal and state tax estimates, according to Bureau of Labor Statistics data.
For retirees with significant savings, that number climbs fast once Social Security, required minimum distributions, and investment income all land in the same year. The good news is that you have more control over that outcome in retirement than at almost any other point in your financial life. The rest of this guide covers how to use that control.
Different Retirement Income Sources Are Taxed at Different Rates
Each income stream carries its own tax treatment. Understanding which sources trigger taxes, and at what rates, is the foundation of any tax strategy.
| Income source | Tax treatment |
|---|---|
| Traditional IRA / 401(k) withdrawals | Ordinary income |
| Roth IRA withdrawals | Tax-free (account open 5+ years, age 59½ or older) |
| Social Security benefits | 0%, 50%, or 85% taxable depending on combined income |
| Capital gains (brokerage accounts) | 0%, 15%, or 20% depending on income |
| Pension and annuity income | Generally ordinary income |
| HSA withdrawals for medical expenses | Tax-free |
| Qualified dividends | Capital gains rates |
Most retirees hold assets across three types of accounts. Each has distinct rules:
| Traditional IRA / 401(k) | Roth IRA / 401(k) | Taxable brokerage | |
|---|---|---|---|
| Tax on contribution | Deducted now | Paid now | Paid now |
| Tax on growth | Deferred | Tax-free | Taxed annually on dividends and gains |
| Tax on withdrawal | Ordinary income | Tax-free (if qualified) | Capital gains rate |
| RMD required | Yes, starting at age 73 or 75 | No | No |
| Best used for | Tax-deferred growth; withdrawals in lower-bracket years | Long-term tax-free growth; legacy assets | Flexible access; tax-loss harvesting |
Where you hold your money, and the order you tap it in, shapes your tax exposure across your entire retirement.
Withdrawal Sequencing Has More Tax Impact Than Most Retirees Realize
The order you draw from accounts is nearly as important as how much you’ve saved. Conventional guidance says to tap taxable accounts first, then tax-deferred accounts like traditional IRAs, and save Roth accounts for last. That sequence isn’t always right.
Pamela Kornblatt, president of Tax Strategist, LTD, recommends keeping assets across all three account types throughout retirement. That gives you the flexibility to choose which tax bracket you land in each year, by deciding which accounts to pull from.
In a low-income year (say, early retirement before Social Security begins) you can pull from a traditional IRA and stay in a lower bracket. In a year when you’ve already crossed a threshold, you pull from Roth instead. The tax difference, compounded over a long retirement, is real.
Darrow Kirkpatrick, writing for Can I Retire Yet, found that a typical retired couple’s effective tax rate can swing from 0% to 23.8% over the course of retirement, with no single number that holds up the whole way through. That’s the argument for managing withdrawals year by year instead of planning around one fixed tax-rate assumption.
If you’re retiring before 59½, there are specific strategies for accessing retirement funds without the standard 10% penalty, including the Rule of 55 and 72(t) SEPP distributions. See Early Retirement Withdrawals for a full breakdown.
The Boldin Planner lets you set a custom withdrawal order and model the tax impact of different sequences across your full retirement timeline.
Roth Conversions Make the Most Sense in Low-Income Years Before RMDs Begin
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account. You pay income tax on the converted amount in the year you do it. After that, the money grows tax-free and comes out tax-free.
The case for converting is strongest when:
- You’re in a lower tax bracket than you expect to be later. (That’s common in early retirement, before RMDs begin.)
- You have funds outside the IRA to pay the tax bill.
- Your heirs would benefit from inheriting a tax-free account.
- You want to reduce future RMDs.
- The market is down, meaning you’re converting more shares at a lower dollar cost.
The case against: if you’re in a high bracket now and expect a lower one at withdrawal, converting costs more than it saves. It’s also worth checking whether a conversion would trigger IRMAA surcharges or disrupt ACA subsidy eligibility before you commit.
Partial conversions spread the tax impact across several years and let you stay within a target bracket. You don’t have to convert an entire account at once.
The Boldin Roth Conversion Explorer runs multi-year scenarios against your specific plan to find if and when conversion makes sense.
Social Security Benefits Are Taxable Once Combined Income Crosses $25,000
Up to 85% of Social Security benefits can be subject to federal income tax. Whether your benefits are taxed depends on your combined income: half of your Social Security benefit plus all other income.
- Combined income under $25,000 (single) or $32,000 (married filing jointly): benefits aren’t taxed
- $25,001 to $34,000 (single) or $32,001 to $44,000 (married): up to 50% of benefits may be taxed
- Above $34,000 (single) or $44,000 (married): up to 85% of benefits may be taxed
These thresholds haven’t been adjusted for inflation since they were set in the 1980s. More retirees cross them every year.
Managing income through withdrawal sequencing, Roth conversions in low-income years, or deferring other income can keep benefits partially or fully untaxed. Staying just below a threshold makes a meaningful difference.
State taxation of Social Security is separate from federal. Only eight states still tax benefits to some degree in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. West Virginia completed its three-year phase-out on January 1, 2026, joining the majority of states that leave Social Security benefits entirely untaxed.
Large RMDs Can Push Retirement Income Into a Higher Tax Bracket
Required minimum distributions force withdrawals from tax-deferred accounts starting at age 73 for those born before 1960, and age 75 for those born in 1960 or later. The IRS taxes these withdrawals as ordinary income.
A large traditional balance makes this worse. RMDs can push income into a higher bracket, trigger IRMAA surcharges, and increase the share of Social Security that’s taxable. All three effects can compound in a single tax year.
Three ways to reduce RMD exposure:
Convert before RMDs begin. Moving traditional IRA assets to Roth in the years between retirement and age 73 reduces the balance subject to future distributions. Roth IRAs have no RMD requirement.
Reverse rollover. If you’re still working past 70 and your employer’s 401(k) plan allows it, rolling a traditional IRA into that plan defers RMDs on the balance until you separate from service.
Qualified charitable distributions. If you’re 70½ or older, you can transfer up to $111,000 per year from your IRA to a qualifying charity. The distribution counts toward your RMD for the year but doesn’t appear as taxable income on your return. For retirees who give to charity anyway, it’s one of the most tax-efficient strategies available.
Missing an RMD carries a 25% penalty on the amount that should have been withdrawn. It drops to 10% if you correct it within the IRS’s two-year correction window.
Four Strategies Reduce Taxable Income Without a Major Portfolio Change
Several strategies let you convert taxable income to nontaxable income, or offset gains with losses. None of them require a major portfolio shift.
HSA contributions
A Health Savings Account lets you contribute pre-tax, grow the balance tax-free, and withdraw it tax-free for qualified medical expenses. In 2026, individuals can contribute up to $4,400; families up to $8,750, plus a $1,000 catch-up for those 55 and older.
Medical care is one of the largest variable expenses in retirement, and an HSA balance covers it tax-free.
Charitable bundling
The standard deduction is high enough that most retirees don’t itemize in any given year. Charitable bundling concentrates multiple years of planned donations into a single year, pushing total deductions above the standard threshold. A donor-advised fund makes this practical: you contribute a lump sum and take the deduction in that year, then distribute grants to charities over time.
Tax-loss harvesting
Selling investments in a taxable account at a loss offsets capital gains elsewhere in your portfolio. Losses above your gains can offset up to $3,000 of ordinary income per year, with the remainder carried forward to future years.
Bundling medical expenses
You can only deduct medical expenses exceeding 7.5% of adjusted gross income. If you’re near that threshold, concentrating planned procedures or expenses into a single calendar year clears the floor and maximizes the deduction.
Medicare Surcharges and Pension Distributions Create Tax Problems Retirees Often Miss
Two events catch retirees off guard often enough to be worth planning around.
IRMAA
Medicare’s income-related monthly adjustment amount applies when your modified adjusted gross income from two years prior exceeds certain thresholds. For 2026, Medicare uses your 2024 income. The 2026 IRMAA thresholds from CMS show that once your modified adjusted gross income crosses $109,000 for individuals or $218,000 for married filing jointly, Part B and Part D premiums increase. The surcharge can add hundreds of dollars per month.
A large Roth conversion in 2024 can raise your 2026 Medicare costs. Run the full numbers before you commit. IRMAA and ACA exposure can change the math.
If your income dropped after a high-income year, because you retired or sold a business, you can appeal an IRMAA surcharge using Form SSA-44. Medicare will recalculate based on your current income.
For a full breakdown of IRMAA brackets and how to manage them, see Medicare IRMAA: What It Is and How to Avoid the Surcharge.
Lump sum pension distributions
When you take a lump sum pension payment, the paying institution withholds 20% for federal taxes by default. To avoid this, request a direct rollover to an IRA. The payment goes to the IRA custodian without passing through your hands, and no withholding applies. Taking the check payable to yourself, then depositing it yourself, triggers the withholding and starts a 60-day rollover clock.
Relocating in Retirement Can Reduce Your State Tax Bill by Thousands
Most retirement tax planning focuses on federal liability. State taxes can be equally significant, and they vary widely. That’s why retirees often research the best states to retire for taxes.
Some states have no income tax. Others exempt Social Security and tax pension income. Some apply exemptions to IRA withdrawals up to a threshold. If you’re considering relocating, the difference in state tax treatment across Social Security, pension, investment income, and IRA withdrawals combined can run to several thousand dollars a year.
The Boldin Planner models state tax changes when you specify a planned move, updating projections from the year of relocation forward.
FAQ: Retirement Tax Planning
What’s the most important retirement tax strategy?
Withdrawal sequencing (deciding which accounts to pull from and in what order) has more impact on lifetime tax liability than almost any other decision. Drawing from traditional IRA accounts in low-income years and Roth accounts in high-income years lets you control your tax bracket year by year. The difference over a 20- or 30-year retirement can add up to tens of thousands of dollars.
How do Roth conversions reduce taxes in retirement?
A Roth conversion shifts money from a pre-tax account to one where growth and withdrawals are tax-free. Paying tax on the converted amount now, at a lower rate, avoids paying tax on a much larger balance later. The best window is usually early retirement, after you stop working but before Social Security and RMDs push income back up.
At what income level does Social Security become taxable?
For single filers, Social Security benefits start to be taxed when combined income exceeds $25,000. Up to 50% of benefits may be taxed between $25,000 and $34,000; up to 85% above $34,000. For married filers, the thresholds are $32,000 and $44,000. These limits haven’t been adjusted for inflation since they were established, so more retirees cross them each year.
What is a qualified charitable distribution and how does it reduce taxes?
A qualified charitable distribution lets IRA owners aged 70½ and older transfer funds from their IRA to a qualifying charity. The distribution counts toward the required minimum distribution for that year but doesn’t appear as taxable income. The 2026 annual limit is $111,000 per person. For retirees who already give to charity, QCDs are among the most tax-efficient tools available.
How do RMDs affect your tax bracket in retirement?
RMDs are taxed as ordinary income. For retirees with large traditional IRA or 401(k) balances, the distributions can push total income into a higher federal bracket, trigger IRMAA Medicare surcharges, and increase the share of Social Security benefits that are taxable, all in the same year. The most effective way to reduce RMD impact is converting traditional IRA assets to Roth before RMDs begin.
What’s the penalty for missing an RMD?
The IRS charges 25% of the amount that should have been withdrawn. The penalty drops to 10% if the missed distribution is corrected within the two-year window the IRS allows.
Does moving to a different state change your retirement tax bill?
Relocating in retirement can sometimes significantly change your tax bill. States vary on whether they tax Social Security, pension income, IRA withdrawals, and capital gains. Some have no income tax. A move to a more favorable state can reduce annual taxes by several thousand dollars depending on your income mix.
