Taxes in retirement
Taxes may be your biggest retirement expense
Most retirees are surprised by how much of their savings goes to taxes. Proactive planning — before and during retirement — can make a significant difference.
Tax risk is the danger most retirees overlook
You spent decades saving in tax-deferred accounts. Now every dollar you withdraw is ordinary income. Add Social Security taxation, Medicare IRMAA surcharges, and Required Minimum Distributions — and your effective tax rate in retirement can be higher than you ever paid while working. The good news: with the right strategy, much of this is preventable.
The four biggest tax risks in retirement
RMD tax bombs
Required Minimum Distributions force you to withdraw from tax-deferred accounts starting at age 73. Large RMDs can push you into higher brackets, trigger Social Security taxation, and cause IRMAA surcharges — all at once.
Social Security taxation
Up to 85% of your Social Security benefit can be taxable. The taxation thresholds have not been adjusted for inflation since 1984, meaning more retirees are affected every year.
IRMAA surcharges
Higher income in retirement triggers Medicare premium surcharges. A single large withdrawal — from an IRA, a home sale, or a Roth conversion — can push you into a higher IRMAA tier for the following year.
Tax bracket stacking
When RMDs, Social Security, pension income, and investment income all hit at once, they stack on top of each other. Without planning, retirees can find themselves in the 22%, 24%, or even 32% bracket unexpectedly.
Strategies to reduce your tax bill
Roth conversions
Converting traditional IRA funds to a Roth IRA during low-income years — before RMDs begin — can dramatically reduce future taxable income. The key is filling lower tax brackets strategically each year.
Tax-efficient withdrawal sequencing
The order in which you draw from taxable, tax-deferred, and tax-free accounts affects your lifetime tax bill. A coordinated withdrawal strategy can extend the life of your portfolio.
Qualified Charitable Distributions
If you are 70.5 or older, you can donate up to $105,000 per year directly from your IRA to charity. QCDs satisfy your RMD requirement and are excluded from taxable income entirely.
Income smoothing
Spreading income across years — rather than taking large lump sums — keeps you in lower brackets and below IRMAA thresholds. This requires multi-year planning, not just year-end decisions.
Common questions
Find out how much tax risk is hiding in your retirement plan
David O'Bryan, CPA specializes in retirement tax planning. We will review your accounts and identify strategies to reduce your lifetime tax bill.
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