Taxes in Retirement: How to Keep More of What You’ve Worked For

For many retirees, taxes don’t go away — they just look different. After decades of saving and investing, retirement introduces a new challenge: coordinating your income sources in a way that minimizes taxes and helps your money last.

In my experience, even financially savvy people are surprised by how many moving parts there are — Social Security benefits, IRAs, Roth conversions, required minimum distributions, healthcare premiums, and more. Knowing how these pieces fit together won't allow you to eliminate taxes completely, but it can help you manage them thoughtfully over time.

Here are a few strategies for how to do just that.

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1. Understand How Your Income Is Taxed

During your working years, most income comes from a paycheck — and it’s taxed in a straightforward way. In retirement, however, income may come from several places, each with different tax treatment:

• Traditional IRAs or 401(k)s: Withdrawals are taxed as ordinary income.
• Roth IRAs: Qualified withdrawals are tax-free.
• Taxable brokerage accounts: Only interest, dividends, and realized capital gains are taxed.
• Social Security benefits: May be up to 85% taxable depending on total income.

Understanding which “bucket” your income comes from each year is the foundation of tax-efficient retirement planning.

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2. Manage Withdrawals Strategically

When and where you pull funds from matters.

For example, drawing too heavily from tax-deferred accounts early in retirement can push you into higher brackets and increase the portion of your Social Security that’s taxable. On the other hand, drawing too little may lead to larger Required Minimum Distributions (RMDs) later, when your flexibility is lower.

A thoughtful withdrawal strategy — often called a tax-diversified income plan — coordinates across accounts to help smooth out taxes overtime instead of spiking them in any single year.

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3. Consider Roth Conversions (Carefully)

Roth conversions can be a powerful tool when used strategically. By voluntarily moving funds from a traditional IRA to a Roth IRA, you pay taxes now in exchange for tax-free growth and withdrawals later.

This can make sense in lower-income years, such as early retirement before RMDs or Social Security begin. But it’s not always the right move — timing, tax brackets, and Medicare thresholds all matter.

The goal isn’t to eliminate taxes altogether; it’s to pay them on your terms, when rates and circumstances are most favorable.

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4. Use Qualified Charitable Distributions (QCDs)

For retirees who are charitably inclined, Qualified Charitable Distributions can help reduce taxable income while supporting worthy causes.

A QCD allows individuals aged 70½ or older to donate up to $100,000 per year directly from an IRA to a qualified charity. The amount counts toward your RMD but is excluded from taxable income.

If you’re already giving to charities, a QCD can be one of the simplest ways to align generosity with smart tax planning.

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5. Keep an Eye on Medicare Premiums

Many retirees are surprised to learn that higher income can also increase Medicare premiums through Income-Related Monthly Adjustment Amounts (IRMAA).

These surcharges apply if your modified adjusted gross income (MAGI) exceeds certain thresholds. That means a large IRA withdrawal or Roth conversion in one year could raise your Medicare costs two years later.

This doesn’t mean you should avoid conversions — it simply means those moves should be planned carefully and in context.

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6. Revisit Your Plan Each Year

Tax laws, income needs, and personal circumstances change. A tax-efficient retirement plan isn’t a one-time exercise — it’s an ongoing process.

Annual check-ins can help identify new opportunities, such as realizing gains in lower brackets, adjusting Roth conversion amounts, or coordinating with year-end charitable giving strategies.

Working with a fee-only fiduciary advisor can provide a structured process for staying proactive rather than reactive.

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Bringing It All Together

Tax planning in retirement isn’t about finding loopholes — it’s about being intentional with your money. Every decision you make with your savings has a tax implication, and small adjustments can compound into meaningful benefits over time.

By coordinating your income, investments, and charitable giving, you can create a plan that supports both your lifestyle and your long-term purpose.

You’ve already done the hard work of saving — now let’s make sure it’s used wisely.‍

Schedule a short Discovery Call with Stillwater Financial Planning to see how a values-based, fiduciary approach can help you manage taxes with clarity and confidence throughout retirement.

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Disclaimer: This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee.

Investment advice offered through IHT Wealth Management, a registered investment advisor