Retirees can potentially reduce their 2026 tax liability by evaluating Roth conversions, managing required minimum distributions, making tax-efficient charitable donations, and reviewing capital gains. Coordinating retirement withdrawals with Social Security and Medicare premiums can also help avoid unexpected expenses. Greenbush Financial Group helps retirees evaluate these strategies as part of their long-term retirement income and tax planning.
Why Year-End Tax Planning Is Important in Retirement
Retirement can create valuable tax planning opportunities that weren't available while you were working.
Without a regular paycheck, you may have more control over when you recognize income from retirement accounts and investments.
However, even one financial decision, such as a large IRA withdrawal or Roth conversion, could affect your income taxes, Social Security taxation, and future Medicare premiums.
The challenge is knowing which opportunities to take advantage of before the year ends and which decisions could create unexpected costs.
Here are seven strategies retirees should consider before December 31, 2026.
1. Consider a Roth IRA Conversion
A Roth conversion involves transferring money from a traditional IRA into a Roth IRA and paying income taxes on the taxable amount converted.
The potential benefit is that future qualified Roth withdrawals are tax-free, and Roth IRAs don't require minimum distributions during the original owner's lifetime.
Example:
A retired couple has $80,000 in taxable income before considering a conversion.
For 2026, the 12% federal income tax bracket for married couples filing jointly extends to $100,800 in taxable income.
The couple could potentially convert approximately $20,000 while remaining within that bracket, assuming no other income or deduction changes.
However, conversions can increase the taxable portion of Social Security benefits, reduce certain deductions, and affect future Medicare premiums.
Planning Tip: Consider how much you could convert at an attractive overall tax cost rather than automatically converting the largest possible amount.
A Roth conversion that looks favorable based on your tax bracket alone may be less beneficial when other tax consequences are included.
2. Review Your Required Minimum Distributions (RMDs)
Traditional IRA and certain retirement account owners generally must begin taking required minimum distributions at age 73, although the starting age is 75 for those born in 1960 or later.
For retirees already subject to RMDs, distributions generally must be completed by December 31.
Failing to withdraw the required amount can result in an IRS excise tax, generally 25% of the shortfall, potentially reduced to 10% if corrected within the applicable period.
Example:
Suppose your traditional IRA has a $1 million balance and your required distribution for 2026 is $40,000.
That $40,000 generally increases your taxable income, even if you don't need the money for living expenses.
If 2026 is your first RMD year, you may be able to delay the first distribution until April 1, 2027. However, that could result in two taxable distributions in 2027.
Key Insight: Before taking your RMD, consider how it fits into your broader withdrawal strategy. Coordinating distributions with Roth conversions, charitable giving, and Social Security taxation may help prevent unnecessary tax consequences.
3. Use Qualified Charitable Distributions (QCDs)
If you're age 70½ or older and regularly donate to charity, a qualified charitable distribution may provide significant tax advantages.
A QCD allows eligible funds to transfer directly from an IRA to a qualifying charity without including the distribution in taxable income.
For 2026, the annual QCD limit is $111,000 per eligible individual.
Example:
A 75-year-old retiree has a $35,000 required minimum distribution and plans to donate $10,000 to charity.
Instead of withdrawing the full $35,000 and then writing a personal check, the retiree could make a $10,000 QCD directly from the IRA.
Assuming the remaining $25,000 is taxable, this approach could reduce the amount included in taxable income by $10,000 while satisfying that portion of the RMD.
QCDs may also help reduce the taxation of Social Security benefits and income used to calculate Medicare premiums.
Important Note: The money must transfer directly to an eligible charity and meet IRS requirements. A QCD cannot also be claimed as a charitable deduction.
If you intend to use a QCD to satisfy an RMD, consider arranging it before taking other IRA distributions. Once an RMD has already been withdrawn, a subsequent QCD generally cannot retroactively replace it.
4. Review Capital Gains and Investment Losses
Retirees with taxable brokerage accounts should review investment gains and losses before year-end.
Tax-loss harvesting allows you to sell investments at a loss to offset realized capital gains.
However, some retirees may benefit from intentionally realizing gains during lower-income years.
Example:
A recently retired couple has significantly less taxable income than when they were working.
They own investments with substantial unrealized gains.
Depending on their total taxable income, some long-term capital gains may qualify for the 0% federal capital gains rate.
This can create an opportunity to sell appreciated investments and potentially increase their cost basis if they subsequently repurchase those investments.
However, realizing gains isn't automatically tax-free simply because you've retired.
Planning Tip: Review how realized gains affect Social Security taxation, Medicare premiums, and the 3.8% net investment income tax before selling.
The best year to recognize gains may depend on your expected income over the next several years.
5. Evaluate the New Senior Tax Deduction
For 2026, taxpayers age 65 and older may qualify for an additional federal deduction of up to $6,000 per person.
A married couple where both spouses qualify may receive up to $12,000.
This deduction is available to eligible taxpayers who itemize or take the standard deduction.
However, it begins phasing out when modified adjusted gross income exceeds:
$75,000 for single filers
$150,000 for married couples filing jointly
Example:
A married couple, both age 68, has modified adjusted gross income of $130,000.
They may qualify for the full $12,000 additional senior deduction, assuming they satisfy the other requirements.
But if that same couple makes a substantial Roth conversion or realizes significant investment gains, their increased income could reduce the deduction.
This deduction is scheduled to apply through 2028 under current law.
Key Insight: Before making a large Roth conversion or recognizing investment gains, consider whether the additional income could reduce your senior deduction.
A strategy designed to save taxes in the future could create a larger tax cost today than you initially expected.
6. Watch for Medicare IRMAA Surcharges
Medicare premiums can increase when your income exceeds certain thresholds.
These additional charges are known as Income-Related Monthly Adjustment Amounts, or IRMAA.
Medicare generally uses your tax return from two years earlier to determine premiums.
That means your 2026 income will generally affect your Medicare premiums in 2028.
Example:
A retired couple makes a large Roth conversion, increasing their modified adjusted gross income above an IRMAA threshold.
Although the conversion may provide long-term tax benefits, it could also increase both spouses' Medicare Part B and Part D costs in a future year.
Depending on the circumstances, even a relatively small amount of additional income could push you above a Medicare income threshold.
Planning Tip: Before making a Roth conversion or realizing capital gains, calculate the potential effect on Medicare premiums.
An IRMAA surcharge doesn't automatically make a strategy unfavorable, but it should be included when comparing the immediate costs with the potential long-term benefits.
7. Review Charitable Donations and Tax Deductions
Retirees who give to charity should consider whether to donate cash, appreciated investments, or make qualified charitable distributions.
For 2026, taxpayers who don't itemize may qualify for a deduction of up to $1,000 in eligible cash charitable contributions, or $2,000 for married couples filing jointly.
Retirees who itemize may benefit from donating appreciated investments held longer than one year, subject to applicable deduction limits.
For 2026, itemized charitable deductions are also subject to a new 0.5% adjusted gross income threshold.
Another approach is combining several years of charitable donations into one year, potentially creating enough deductions to make itemizing worthwhile.
For individuals age 70½ or older, QCDs may be particularly attractive because eligible distributions can be excluded from taxable income rather than claimed as an itemized deduction.
Key Insight: The most tax-efficient way to give depends on your age, tax bracket, IRA balances, and whether you itemize deductions.
Before donating, consider whether cash, appreciated securities, or a QCD would provide the greatest overall benefit.
Common Year-End Tax Planning Mistakes
Several mistakes can reduce the benefits of otherwise effective strategies:
Making a large Roth conversion without calculating Medicare premiums. Additional taxable income can increase future Medicare costs.
Missing an RMD deadline or withdrawing the wrong amount. This can result in avoidable penalties and complications.
Selling appreciated investments without evaluating capital gains taxes. A sale may affect other parts of your tax situation.
Taking IRA withdrawals before arranging an intended QCD. The order of distributions can affect the tax outcome.
Focusing only on this year's tax bill instead of lifetime taxes. The lowest current tax bill isn't always the best long-term result.
For married retirees, it's also important to consider how taxes may change after the first spouse passes away.
The surviving spouse may eventually face higher tax rates because of single-filer tax brackets and changes in household income.
This is one reason tax planning decisions should consider both spouses' long-term financial situations.
Five Questions to Ask Before December 31
Before the year ends, consider:
Would a Roth conversion make sense based on our current and expected future tax brackets?
Have we satisfied our required minimum distributions, and could a QCD help?
Are there investment gains or losses worth recognizing this year?
Could additional income affect our senior deduction or future Medicare premiums?
Are our retirement withdrawals and charitable donations structured tax-efficiently?
Answering these questions before December 31 may help identify valuable opportunities and avoid decisions that could create unexpected taxes.
Final Thoughts
Year-end tax planning can provide meaningful opportunities for retirees to reduce taxes and improve long-term financial security.
However, Roth conversions, RMDs, charitable distributions, and investment decisions shouldn't be evaluated independently.
A decision that saves income taxes today could increase Medicare premiums, while a strategy that creates a tax bill now may provide meaningful savings over the course of retirement.
At Greenbush Financial Group, we help retirees evaluate how these strategies fit together with retirement income, Social Security, Medicare, and estate planning.
The goal isn't necessarily to minimize taxes in one year. It's to create a tax-efficient retirement strategy that works throughout your lifetime.
Reviewing these opportunities before December 31 can help you make more confident decisions about your retirement finances.
Rob Mangold
About Rob……...
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.
Frequently Asked Questions
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What is the best year-end tax strategy for retirees?
The best strategy depends on your income, age, and retirement accounts. Roth conversions, qualified charitable distributions, and capital gains planning can be particularly valuable when coordinated with your overall retirement income strategy. -
Should retirees do Roth conversions before year-end?
Possibly. Roth conversions can be attractive during lower-income retirement years, but they may increase taxes on Social Security benefits and future Medicare premiums. The conversion must generally be completed by December 31 to count for that tax year. -
Can retirees avoid taxes on required minimum distributions?
Generally, traditional IRA RMDs are taxable. However, eligible individuals age 70½ or older can use qualified charitable distributions to exclude qualifying amounts donated directly to charity from taxable income. -
Does a Roth conversion affect Medicare premiums?
Yes. Roth conversions increase modified adjusted gross income and may trigger higher Medicare Part B and Part D premiums, generally two years later. -
What is the deadline for year-end tax planning in 2026?
Roth conversions, most RMDs, tax-loss harvesting transactions, and qualified charitable distributions generally need to be completed by December 31, 2026. Certain first-year RMD exceptions and other deadlines apply.
