I’m a Financial Planner: 4 Tax Moves Retirees Often Regret Not Making
Written by
Vance Cariaga
Edited by
Jenna Klaverweiden
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Smart tax planning doesn’t end when you retire. If anything, it takes on added importance when you’re on a fixed income and have fewer opportunities to boost your finances.
Not making the right tax moves can be a costly mistake that lasts throughout your retirement. Here are four tax moves retirees often regret not making, according to financial planners.
Also see nine strategies to minimize the taxes you pay on retirement savings.
Roth Conversions
One move to consider making in retirement is converting traditional IRAs and 401(k)s to Roth IRAs — especially before required minimum distributions (RMDs) kick in at age 73.
By the time RMDs begin, many retirees already have income from Social Security that can create “more taxable income than they actually need,” according to Josh Kaplan, CFP, an enrolled agent (EA) and financial advisor at Armstrong, Fleming & Moore Inc.
“This creates a planning window — typically from retirement until roughly age 70-73 — to strategically move money from traditional retirement accounts into a Roth IRA,” he told GOBankingRates. “Although the converted amount is taxable in the year of the conversion, many retirees are in a lower tax bracket during these years than they will be once RMDs begin.”
In addition to the tax benefits, Roth conversions can also help reduce Medicare premium surcharges by “keeping later-life income lower,” Kaplan said.
Qualified Charitable Donations
Many retirees regret missing out on charitable tax opportunities with a qualified charitable distribution (QCD), said Chad Gammon, CFP, RICP, EA and owner of Custom Fit Financial.
After age 70 1/2, QCDs let retirees donate directly from a pre-tax IRA to a qualified charity “without increasing their taxable income,” he told GOBankingRates. “I’ve seen seniors take out distributions to themselves and then give to charities and they are missing out on a great tax strategy.”
Making Tax-Efficient Investments
Retirees often regret not evaluating the tax efficiency of their investments. As Kaplan noted, one smart move is to put more money into exchange-traded funds (ETFs), which are “generally more tax-efficient” than traditional mutual funds because they tend to generate fewer capital gains distributions.
“This structure can give retirees greater control over their taxable income, regardless of portfolio activity during the year,” Kaplan said. “While it may not be appropriate to shift an entire portfolio into ETFs, selectively incorporating them, especially when coordinated with charitable and family-giving strategies — can lead to meaningful long-term tax benefits.”
Creating a Withdrawal Strategy
From a planning standpoint, seniors might regret not taking the time to develop a smart withdrawal strategy throughout their retirement.
“A coordinated strategy that blends taxable, tax-deferred, and tax-free assets can help control annual taxable income,” Gammon said. “It can also help reduce the risk of higher Medicare IRMAA (Income-Related Monthly Adjustment Amount) premiums or loss of deductions like the enhanced senior deduction.”
More From GoBankingRates
