Retirement Tax Planning: Maximize Income & Minimize Taxes
Written by
Angela Mae
Edited by
Joe Evans
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When it comes to stretching your savings, retirement tax planning is just as important as choosing the right investments. By carefully planning how and when you pull money from Social Security, 401(k)s, IRAs and other accounts, you can lower your lifetime tax bill, preserve your benefits and make your nest egg last longer.
In fact, taxes are often the single largest expense retirees face — sometimes even bigger than healthcare. But with the right strategy, you can keep more of your money working for you.
This guide breaks down how retirement income is taxed, explains smart withdrawal strategies and shows you how to use windows of opportunity — like the “Golden Window” — to maximize what you keep.
Understanding Retirement Taxes
Not all retirement income is taxed the same way. Knowing which sources are taxable, partially taxable or tax-free helps you plan smarter.
How Social Security Is Taxed
According to the SSA, nearly 69 million Americans receive Social Security benefits each year. Depending on your income, up to 85% of your Social Security benefits may be taxable. Supplemental Security Income (SSI), however, isn’t taxable.
For 2025, taxes apply if your “combined income” (half your benefits plus other taxable income) exceeds:
- $25,000 for single filers
- $32,000 for married filing jointly
- $0 if married, filing separately and living together
Required Minimum Distributions (RMDs) Under SECURE 2.0
The SECURE 2.0 Act, passed in 2022, raised the age for RMDs:
- Born 1951-1959: RMDs begin at age 73.
- Born 1960 or later: RMDs begin at age 75.
If you miss an RMD, you could face a penalty of up to 25% of the amount you should’ve withdrawn (IRS).
Medicare IRMAA Surcharges
If your income is above a certain threshold, you’ll pay more for Medicare Part B and Part D premiums.
- In 2025, surcharges apply above $106,000 for individuals or $212,000 for couples filing jointly (CMS).
- Around 8% of Medicare recipients pay these higher costs.
The “Golden Window:” A Hidden Opportunity
The Golden Window is the period after you retire but before you’re required to start RMDs or claim Social Security. For many, that’s ages 60 to 72/73.
Why it matters:
- Your income is often at its lowest during these years, giving you more room to take proactive tax steps.
- Moves like Roth conversions, partial withdrawals and capital gains harvesting can help you stay in a low bracket now and save on taxes later.
Delaying Social Security from age 62 to 70 can increase your monthly benefit by up to 77%. Pairing that delay with Roth conversions during the Golden Window can significantly reduce future RMDs.
Tax-Efficient Withdrawal Strategies
Having multiple account types gives you flexibility. The key is knowing which accounts to tap first.
The 4-5% Rule
Fidelity recommends withdrawing 4% to 5% of your savings annually, adjusted for inflation, to give your portfolio the best chance of lasting throughout retirement. For example, if you retire with $500,000, a safe starting withdrawal is about $20,000 annually.
Which Accounts To Tap First
Most tax planners suggest:
- Taxable accounts (brokerage, savings): Tap these first to benefit from lower long-term capital gains rates.
- Tax-deferred accounts (traditional IRA, 401(k)): Withdraw after taxable accounts to manage tax brackets.
- Roth accounts: Save these for last since withdrawals are tax-free and grow longer.
Comparison: Withdrawal Order
| Account Type | Tax Treatment at Withdrawal | Best Use Case | Key Considerations |
|---|---|---|---|
| Taxable | Contributions are always tax-free; earnings tax-free if qualified | Spend first to preserve tax-advantaged accounts | May generate dividend income annually |
| Tax-Deferred | Ordinary income tax rates | Middle stage of retirement | Watch RMD age rules (73 or 75) |
| Roth Accounts | Tax-free withdrawals | Use last for tax-free growth or legacy planning | Contributions are always tax-free; earnings are tax-free if qualified |
Using Charitable and Advanced Moves
Not all retirement tax strategies are about withdrawals. Some involve charitable giving and advanced planning moves that can lower your taxable income while helping you meet other goals — like supporting causes you care about or balancing your investment portfolio.
Here are three powerful tools retirees often use to cut taxes and stretch their savings further.
Qualified Charitable Distributions (QCDs)
If you’re 70½ or older, you can donate up to $108,000 annually directly from your IRA. This counts toward RMDs but doesn’t increase taxable income.
Charitable Donations
Cash donations are deductible up to 60% of AGI if you itemize, according to the IRS.
Tax Loss Harvesting
By selling investments at a loss, you can offset capital gains and even reduce taxable income by up to $3,000 per year.
Account & Asset Location Optimization
Where you place your investments matters:
- Taxable accounts: Hold index funds, ETFs and municipal bonds (efficient tax treatment).
- Tax-deferred accounts: Better for income-generating investments like bonds or REITs.
- Roth accounts: Place growth-focused investments to maximize tax-free compounding.
According to Federal Reserve data, the median retirement savings for U.S. households aged 65-74 is just $200,000. Tax diversification — using Roth, traditional and taxable accounts — helps limited savings stretch further.
Advanced Strategies for Affluent Retirees
High-net-worth retirees often benefit from additional planning layers:
Backdoor and Mega Backdoor Roth IRAs
- Backdoor Roth: Convert nondeductible IRA contributions into Roth contributions.
- Mega Backdoor Roth: If allowed by your employer, move after-tax 401(k) contributions into a Roth IRA.
Annuities and Longevity Insurance
Buying a deferred annuity can lock in guaranteed income starting later in life, protecting against outliving your assets.
Estate Tax Planning
In 2025, the federal estate tax exemption is $13.99 million, or $27.98 million for married couples. Starting next year, the exemption will increase to $15 million per person ($30 million for married couples). Starting in 2027, the exemption will be indexed for inflation.
Without planning, estates above this amount could face taxes of up to 40%.
Quick Annual Tax Checklist
☐ Review income for IRMAA and tax bracket thresholds
☐ Decide on Roth conversion amounts during Golden Window years
☐ Confirm RMDs if applicable
☐ Adjust withdrawal amounts for inflation
☐ Rebalance investments for tax efficiency
Final Take to GO: Make Taxes Work for You
The goal of retirement tax planning isn’t to avoid taxes altogether — it’s to control them. By planning your withdrawals carefully, making use of the Golden Window and spreading money across taxable, tax-deferred and Roth accounts, you can reduce lifetime taxes and keep your income more predictable.
Ready to stress-test your plan? Try the GoBankingRates Retirement Calculator and explore smart strategies to minimize taxes in retirement.
With the right approach, your retirement income can go further — and your financial future will feel a lot more secure.
FAQs
Here are the answers to some of the most frequently asked questions about taxes on your retirement accounts and how they work:- What is retirement tax planning?
- Retirement tax planning is a strategy that can lower your lifetime taxes, maximize your retirement income and ensure you still have something to leave behind.
- Can Roth conversions reduce my future tax burden?
- In many cases, yes. Roth conversions are taxed as ordinary income, but this could be beneficial if you expect to be in a higher tax bracket in the future.
- How much should I withdraw each year?
- A good rule of thumb is to withdraw no more than 4% of your retirement portfolio each year (adjusted for inflation). If you have $1 million in retirement, that means you can withdraw up to $40,000 annually.
- At what age do I need to start RMDs now?
- The current required minimum distributions rule states that you must take distributions at age 73. There are a few exceptions to this, like if you were born before 1950. If you were born in or after 1960, your RMDs start at age 75.
- How do Medicare IRMAA thresholds impact my income?
- Your income affects your Medicare IRMAA threshold. The higher your income, the more you'll have to pay on your Medicare Part B and Part D premiums [32]. Depending on your income, you may have to pay up to 85% of the total cost of Part B.
Information is accurate as of Sept. 26, 2025.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- U.S. Social Security Administration "Social Security Fact Sheet"
- IRS "IRS reminds taxpayers their Social Security benefits may be taxable"
- IRS "TAXABILITY OF SOCIAL SECURITY BENEFITS"
- IRS "Retirement plan and IRA required minimum distributions FAQs"
- CMS.gov "2025 Medicare Parts A & B Premiums and Deductibles"
- U.S. Social Security Administration "When to Start Receiving Retirement Benefits"
- Fidelity "How can I make my retirement savings last?"
- IRS "Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity"
- The Federal Reserve "Survey of Consumer Finances (SCF)"
