How Can I Reduce Taxes in Retirement?

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

You would think tax planning gets easier after you retire.  There is no longer a paycheck coming in every two weeks. You may no longer be contributing to a 401(k), receiving bonuses, or dealing with stock compensation. At first glance, your tax return might seem like it should become much simpler.

But from a financial planning perspective, retirement is often when tax strategy becomes more important.  The reason is control.

While you are working, much of your income is determined for you. If your employer pays you a $150,000 salary, you generally have $150,000 of wages whether you want the taxable income or not.  In retirement, you may have much more flexibility.

You might have traditional IRAs, 401(k)s, Roth IRAs, taxable brokerage accounts, Social Security, pensions, rental income, or even part-time self-employment income. Depending on your situation, you may be able to control how much taxable income you recognize and where your retirement cash flow comes from.  That creates opportunities—but it also creates complexity.

Some of the retirement tax strategies we will cover include:

• Creating a tax-efficient retirement withdrawal strategy

• Using the 0% long-term capital-gains tax bracket

• Managing taxes on Social Security benefits

• Taking advantage of the enhanced $6,000 senior deduction

• Reducing future required minimum distributions

• Roth conversion planning

• Using qualified charitable distributions

• Managing self-employment income in retirement

• Harvesting investment losses

• Improving the tax efficiency of taxable investment accounts

• Evaluating a change in state domicile

• Managing Medicare IRMAA premiums

The objective isn't necessarily to pay the least amount of tax possible in any one year.  The objective is to manage your taxes over your entire retirement.

Start With Your Retirement Withdrawal Strategy

One of the first places we look when trying to reduce taxes in retirement is the retiree's withdrawal strategy.  Most retirees don't have all of their money in one type of account.  You may have pre-tax retirement accounts such as traditional IRAs and 401(k)s. You may have after-tax assets in savings accounts and taxable brokerage accounts. You may also have Roth IRAs or Roth 401(k)s.

Each of these accounts is taxed differently.  Traditional IRA and 401(k) distributions generally create ordinary taxable income when the money represents pre-tax contributions and earnings. A taxable brokerage account is generally taxed based on interest, dividends, and realized gains rather than the total amount of cash withdrawn. Qualified Roth distributions can potentially be received tax-free.

This gives retirees the ability to create a blended withdrawal strategy.

Don't Automatically Spend All of Your Brokerage Assets First

One of the most common mistakes we see is a retiree who decides to spend all of their cash and taxable brokerage assets before touching their traditional IRA.  The reasoning seems logical. 

“If I don't withdraw from my IRA, I don't have to pay taxes.”

For the first several years of retirement, that strategy may produce a very small tax bill.  But it can create a much larger problem later.  If you leave a large traditional IRA untouched, the account can continue growing. Eventually, required minimum distributions may force taxable money out of the account whether you need it or not.

Instead of having relatively modest taxable income throughout retirement, you may end up with very little taxable income during your 60s followed by substantial taxable income during your 70s and 80s. In some situations, it can make more sense to intentionally take traditional IRA distributions during lower-income years.  You voluntarily pay some tax today to potentially avoid paying tax at higher marginal rates later.

Think About Lifetime Taxes, Not Just This Year's Taxes

Imagine two retirement strategies.

Under Strategy A, you pay $5,000 in federal income tax this year.

Under Strategy B, you pay $10,000.

Strategy A sounds better.

But what if Strategy A causes your traditional IRA to grow substantially larger and ultimately results in much higher RMDs? Perhaps you save $5,000 today but pay an additional $50,000 or $100,000 of taxes over the next 20 years.

That is why retirement tax planning requires projections.

The question shouldn't simply be:

“How can I reduce my taxes this year?”

It should be:

“How can I structure my income to potentially reduce my total tax liability throughout retirement?”

Take Advantage of the 0% Long-Term Capital-Gains Rate

For retirees with taxable brokerage accounts, one of the most valuable planning opportunities can be the 0% federal long-term capital-gains rate.

For tax year 2026, the top of the 0% long-term capital-gains bracket is $49,450 of taxable income for single filers and $98,900 for married couples filing jointly. The threshold is $66,200 for heads of household.  The important phrase is taxable income.

These thresholds don't mean a married couple earning $98,000 can sell an unlimited amount of appreciated investments tax-free.  Capital gains are layered on top of other taxable income.

An Example of the 0% Capital-Gains Rate

Assume a married retired couple owns an investment in Company ABC in their taxable brokerage account.  The position is worth $100,000.

They originally invested $50,000, so they have a $50,000 unrealized long-term capital gain.

Now assume their other taxable income and deductions leave them with enough room that the entire $50,000 gain remains within the 0% long-term capital-gains bracket.

They may potentially be able to sell the investment and recognize that $50,000 gain while paying 0% federal long-term capital-gains tax on the gain.  That can be an extremely valuable planning opportunity.

It could allow the couple to diversify a concentrated investment, raise cash for retirement expenses, or sell and reinvest in a different investment while effectively resetting the cost basis at a higher level.  State income taxes can still apply.

The 0% Capital-Gains Bracket Is Not Unlimited

This is where people sometimes misunderstand the rule.

Suppose a married couple has $30,000 of taxable ordinary income and then realizes a $200,000 long-term capital gain. 

They don't get the entire $200,000 gain at the 0% federal rate simply because their ordinary income began below $98,900.   Instead, the income is stacked.

The ordinary taxable income uses the lower portion of the tax brackets first. Long-term capital gains then stack on top.

Using a simplified example, if $30,000 of taxable income has already occupied part of the 0% capital-gains range, approximately another $68,900 could potentially fit below the $98,900 threshold. Gains above that threshold would move into the applicable higher capital-gains rate, which for many taxpayers is 15%, with higher-income taxpayers potentially facing a 20% rate and possibly the 3.8% net investment income tax as well.

The exact calculation depends on the taxpayer's complete return.  This is why we generally determine how much gain to realize before selling a large appreciated investment.

Can You Reduce Taxes on Social Security?

Social Security taxation is another important part of retirement tax planning.  A common misconception is that Social Security is either completely tax-free or completely taxable.

Neither is necessarily true.

At the federal level, anywhere from none to as much as 85% of your Social Security benefits can be included in taxable income depending on your other income. 

Notice what that does not mean.  It does not mean the federal government imposes an 85% tax rate on Social Security. It means up to 85% of the benefit can become taxable income and is then taxed at your applicable income-tax rates.

How Social Security Taxation Is Calculated

The calculation generally begins with what is commonly called combined income or provisional income.

A simplified version includes:

Adjusted gross income before Social Security + tax-exempt interest + 50% of Social Security benefits.

That amount is then compared with certain thresholds.

For a single filer, the primary thresholds are:

$25,000 or less: Benefits generally aren't taxable.

$25,000 to $34,000: Up to 50% of benefits may be taxable.

More than $34,000: Up to 85% of benefits may be taxable.

For a married couple filing jointly, the primary thresholds are:

$32,000 or less: Benefits generally aren't taxable.

$32,000 to $44,000: Up to 50% of benefits may be taxable.

More than $44,000: Up to 85% of benefits may be taxable.

Special rules apply to married individuals filing separately, particularly when they lived with their spouse during the year.

These thresholds have remained relatively low, which means many retirees with pensions, IRA distributions, investment income, or other income sources can find themselves with a portion of Social Security subject to federal taxation.

Why One Extra Dollar of Income Can Have a Bigger Tax Impact Than Expected

Social Security taxation creates what is sometimes referred to as the Social Security tax torpedo.

Suppose you take an additional distribution from a traditional IRA. Not only can that IRA distribution itself be taxable, but the additional income may also cause a larger portion of your Social Security benefit to become taxable. In other words, $1 of additional IRA income can sometimes increase taxable income by more than $1.

This is why withdrawal strategy matters. Using qualified Roth distributions or carefully managing IRA withdrawals in certain years may help control combined income.

However, avoiding taxable income at all costs isn't necessarily the answer. If reducing today's Social Security taxation causes you to build a much larger traditional IRA and substantially larger RMDs later, you may simply be trading a smaller tax bill today for a larger one in the future.  Again, lifetime tax planning matters.

The New $6,000 Enhanced Senior Deduction

Taxpayers age 65 and older may also qualify for a newer federal tax deduction.

For tax years 2025 through 2028, eligible taxpayers age 65 or older can claim an enhanced deduction of up to $6,000 per qualifying individual.

That means a married couple in which both spouses qualify could potentially receive a $12,000 deduction.  Importantly, this deduction is in addition to the existing age-based additional standard deduction. It is also available to eligible taxpayers whether they use the standard deduction or itemize.

However, the enhanced senior deduction is income-limited.

For single taxpayers, the deduction begins phasing out when modified adjusted gross income exceeds $75,000 and is fully phased out above $175,000.

For married couples filing jointly, the phaseout begins above $150,000 of modified adjusted gross income and is fully phased out above $250,000.

The phaseout occurs at 6% of MAGI above the applicable threshold. This creates yet another income threshold retirees need to consider. A large IRA distribution, Roth conversion, capital gain, or other income event could reduce the senior deduction.  As a result, a tax strategy that appears attractive when looking at the income-tax brackets alone may look different once the enhanced senior deduction is included.

Roth Conversions Can Help Reduce Future Retirement Taxes

Roth conversions can be another powerful retirement tax strategy.  A Roth conversion involves moving money from a traditional IRA into a Roth IRA and recognizing the taxable conversion amount as income in the year of conversion.

Why voluntarily pay tax today?

Because retirement can create unusually low-income years. 

Imagine you retire at age 62.

Your salary stops. Perhaps you decide to delay Social Security. Your required minimum distributions won't begin for years.  That period could create an attractive Roth conversion window.

Instead of leaving lower tax brackets unused, you may choose to convert a portion of your traditional IRA each year.  The goal is not simply to create a large Roth IRA.  The goal is to determine whether paying tax on those dollars today at a particular marginal rate could be preferable to paying tax on them later.

Roth Conversions and Medicare Need to Be Coordinated

There is an important catch.

Roth conversions increase income.  If you are on Medicare, a large Roth conversion could potentially increase your Medicare Part B and Part D premiums through IRMAA.

That doesn't necessarily mean you shouldn't process the conversion. Perhaps paying an additional Medicare premium for one year is worthwhile if the conversion substantially reduces future RMDs and future taxes.

But that Medicare cost needs to be included in the calculation. Tax planning and Medicare planning should not occur in separate silos.

RMD Planning Can Reduce Taxes Later in Retirement

Required minimum distributions are another major retirement tax consideration.

Under current federal rules, the applicable RMD age is generally 73 for individuals reaching the applicable age under the earlier SECURE 2.0 schedule, while individuals born in 1960 or later generally have an applicable RMD age of 75.

Once RMDs begin, the IRS requires minimum distributions from applicable pre-tax retirement accounts each year. Whether you need the money or not doesn't matter.  This can create a problem for retirees with very large traditional IRA and 401(k) balances.

The $1 Million RMD Problem

Assume you are 65 and have $1 million in traditional retirement accounts.

You don't need the money, so you decide not to touch the account.  Now assume hypothetically that by the time your RMDs begin, that $1 million has grown to $2 million.  At age 75, the IRS Uniform Lifetime Table currently uses a life-expectancy factor of 24.6.  A $2 million prior-year-end balance divided by 24.6 would produce an RMD of approximately $81,300.

That is more than $80,000 of potential ordinary taxable income before considering Social Security, pensions, investment income, or other sources. Compare that with someone who strategically reduced their pre-tax balance before RMDs began through IRA distributions and Roth conversions.  If that person's applicable pre-tax balance entering the RMD calculation were only $1 million, an age-75 RMD using the same factor would be approximately $40,650.

The difference can materially affect both income taxes and Medicare premiums.  The point isn't that everyone should empty their traditional IRA before RMDs.  The point is that RMD planning should begin years before the first RMD is due.

Qualified Charitable Distributions Can Be Extremely Valuable

For retirees who regularly give money to charity, qualified charitable distributions—or QCDs—can be one of the most valuable retirement tax strategies.

You generally become eligible to make QCDs once you have reached age 70½.

A QCD involves directing money from an eligible IRA directly to a qualifying charitable organization.  When all requirements are satisfied, the QCD is excluded from taxable income.  This is different from taking an IRA distribution yourself, depositing the money in your checking account, and then writing a check to charity.

Why QCDs Can Be Better Than Writing a Check to Charity

Many retirees use the standard deduction.

If you give $10,000 to charity but don't have enough itemized deductions to exceed your standard deduction, that charitable gift may not create an additional federal itemized deduction.

A QCD can change the equation.

Suppose you normally donate $15,000 per year to charity.  Instead of writing checks from your bank account, you direct $15,000 from your traditional IRA to eligible charities through properly executed QCDs.  Assuming all QCD requirements are satisfied, that $15,000 can be excluded from taxable income.  You don't also receive a charitable deduction for the same gift, but you have used pre-tax IRA dollars to accomplish a charitable goal without including the qualifying distribution in income.

QCDs Become Especially Powerful Once RMDs Begin

Now assume your annual RMD is $30,000 and you already plan to give $15,000 to charity.

You direct $15,000 from your IRA to qualifying charities as QCDs.

That $15,000 can count toward satisfying your RMD.

You then take the remaining $15,000 RMD for yourself.

Instead of recognizing $30,000 of taxable RMD income and potentially receiving little or no incremental tax benefit from a separate charitable contribution, you may only have $15,000 of that $30,000 included as taxable IRA income, assuming the QCD is otherwise fully excludable.

Reducing adjusted gross income can have benefits beyond the ordinary income-tax calculation because AGI can affect other parts of the tax return and Medicare premiums. For charitably inclined retirees, QCD planning should often be considered before simply taking an RMD and later writing a personal check to charity.

Self-Employment Income Can Create Planning Opportunities in Retirement

Retirement doesn't always mean you stop working completely.  Many retirees consult, teach, freelance, serve on boards, or operate small businesses.  That self-employment income is taxable, and applicable net earnings can also be subject to self-employment taxes.

However, legitimate self-employment can create planning opportunities as well.

Depending on the business and applicable rules, ordinary and necessary business expenses may be deductible. A retiree with qualifying self-employment income may also have opportunities to contribute to a retirement plan such as a SEP IRA, SIMPLE IRA, or individual 401(k), depending on the circumstances and plan requirements.

For example, someone who retires from a corporate career but continues consulting may have more tax-planning options than someone who simply receives the same amount as additional IRA distributions. 

The important point is that a retirement side business should be treated like a real business.  Income needs to be reported, deductions need to be legitimate, and retirement-plan contributions must follow applicable rules.

Use Tax-Loss Harvesting in Your Brokerage Account

For retirees with taxable brokerage accounts, investment losses can also be valuable from a tax-planning perspective.  Suppose you sell one investment during the year and realize a $20,000 capital gain.  At the same time, another investment in the portfolio has declined and is sitting at a $15,000 unrealized loss.

If selling that investment also makes sense from an investment perspective, realizing the loss could help offset capital gains. This strategy is generally referred to as tax-loss harvesting.

Pay Attention to the Investments You Hold in Taxable Accounts

Asset location can also influence taxes in retirement.  Mutual funds held in taxable brokerage accounts can sometimes distribute capital gains to shareholders.  Those distributions can create taxable income even if you personally didn't sell your mutual-fund shares.  That can be frustrating for a retiree who is carefully managing taxable income.

ETFs can often be more tax-efficient because of the way many ETF structures handle portfolio transactions, although ETFs can still make taxable capital-gain distributions.  Individual securities can provide even more control over when gains and losses are realized, although owning individual stocks introduces other considerations such as diversification and investment risk.

The objective shouldn't be to select investments based solely on taxes.  But when two investment solutions are otherwise appropriate, their tax efficiency can be an important consideration in a taxable brokerage account.

Medicare IRMAA Is a Tax-Planning Issue Even Though It Isn't a Tax

When we're helping retirees manage taxes, we also pay close attention to Medicare premiums.

Higher-income Medicare beneficiaries can pay additional amounts for Medicare Part B and Part D through the Income-Related Monthly Adjustment Amount, or IRMAA.

For 2026, the standard Part B premium applies when modified adjusted gross income is $109,000 or less for an individual or $218,000 or less for a married couple filing jointly.

Above those levels, income-related premiums begin.

For 2026, the Part B premium ranges from the standard $202.90 per month to as much as $689.90 per month for beneficiaries in the highest IRMAA tier. Part D can also carry an additional income-related adjustment.

For a married couple in which both spouses are on Medicare, crossing an IRMAA threshold can have a meaningful impact on annual healthcare costs.

Medicare Uses a Two-Year Lookback

One of the more frustrating parts of IRMAA is the timing.  Medicare generally uses tax-return information from two years earlier to determine current-year income-related premiums.  That means an income decision you make today may not show up in your Medicare premium until two years later.

Suppose you process a very large Roth conversion, realize a large capital gain, or take an unusually large IRA distribution.  The tax bill is obvious.  What is less obvious is that the additional income could also increase Medicare premiums later.  This doesn't mean you should never cross an IRMAA threshold.  Sometimes realizing additional income is still the correct long-term financial decision.  But IRMAA should be treated as another cost in the calculation.

The Enhanced Senior Deduction and IRMAA Create More Retirement Income Thresholds

This is why retirement tax planning has become increasingly complex.

You may be trying to stay within a particular federal income-tax bracket.

At the same time, you may be monitoring the 0% long-term capital-gains threshold.

You could be trying to preserve some or all of the enhanced senior deduction.

You may also be watching Social Security taxation and an IRMAA threshold.

These different rules do not necessarily use exactly the same income calculations.

As a result, simply saying, “Stay in the 12% bracket,” isn't enough to create a comprehensive retirement tax strategy.  You have to look at the entire return and the financial consequences outside the return.

Could Changing Your State of Domicile Reduce Retirement Taxes?

For retirees who are already considering relocating, state taxes can become another major planning opportunity.  Consider someone who owns a home in New York and another home in Florida.

If that person genuinely intends to make Florida their permanent home, changing domicile could potentially change the state taxation of certain retirement and investment income because Florida does not impose an individual state income tax.  But changing domicile is not as simple as saying, “I spent six months in Florida.”

Domicile generally refers to the place you consider your permanent home and intend to return to. 

For New York taxpayers in particular, the rules require careful attention.

New York states that a person's New York domicile does not change until they can demonstrate that they abandoned the New York domicile and established a new domicile elsewhere. New York looks at the broader facts and circumstances of the individual's life.

Things such as where you actually live, the location of important personal connections, and other evidence of where you have established your permanent home can matter.  Registering to vote or changing your driver's license can support the facts, but no single action necessarily determines domicile by itself.

State-Tax Planning Can Be Particularly Important Before Large Transactions

Suppose you are planning to move from a higher-tax state to a state without an individual income tax.  You also intend to process a $500,000 Roth conversion.  Doing the conversion immediately before establishing the new domicile could produce a very different state-tax result than doing it afterward.   The same could potentially apply to large IRA distributions or certain investment income.

However, state sourcing rules can be complex, and not every type of income automatically escapes taxation simply because someone changes residency.  This is an area where advance planning with a qualified tax professional can be particularly important.

The Best Retirement Tax Strategy Changes From Year to Year

One of the most important concepts to understand is that your tax strategy at age 62 may be completely different from your tax strategy at age 75.  At 62, you may have no salary, no Social Security, and no RMDs.  That could be an attractive Roth conversion or capital-gain harvesting year.

At 65, Medicare enters the picture.  Once Social Security begins, you need to consider how other income affects taxation of your benefits. 

At age 70½, QCDs become available.

At age 73 or 75, depending on your applicable RMD age, required minimum distributions may become a significant part of your taxable income.

The retirement tax plan should change as you move through those stages.

So, How Can You Reduce Taxes in Retirement?

The first step is to stop looking at your tax return one year at a time.

Retirement creates an opportunity to coordinate your traditional retirement accounts, Roth accounts, brokerage assets, Social Security, charitable giving, investment gains and losses, Medicare premiums, and potentially even your state of residence.

Sometimes reducing taxes means realizing more taxable income today.

You might intentionally take an IRA distribution while you are in a low tax bracket.

You might process a Roth conversion before RMDs begin.

You might realize a long-term capital gain while it qualifies for the 0% federal rate.

You might use a QCD rather than writing a personal check to charity.

Or you may realize investment losses to offset gains elsewhere in your portfolio.

The lowest tax bill this year isn't necessarily the best tax strategy.

The goal is to manage your income so that you are taking advantage of lower tax rates and planning opportunities throughout retirement while avoiding unnecessary taxes, Medicare costs, and large taxable distributions later in life.

That is why tax planning can become more important—not less important—after the paycheck stops.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions About Reducing Taxes in Retirement

1. How can I legally reduce my taxes in retirement?
   Retirees may be able to reduce taxes through coordinated withdrawals from traditional IRAs, Roth accounts, and taxable brokerage accounts; Roth conversions; 0% long-term capital-gain harvesting; qualified charitable distributions; tax-loss harvesting; and advance RMD planning. The best strategy depends on both your current tax situation and the income you expect later in retirement.
2. What is the most tax-efficient way to withdraw money in retirement?
   There is no universal withdrawal order. A tax-efficient retirement withdrawal strategy often combines distributions from taxable brokerage accounts with strategic withdrawals from traditional retirement accounts while preserving Roth assets when appropriate. The objective is generally to manage tax brackets over your lifetime rather than completely emptying one account before using another.
3. How can retirees pay 0% tax on long-term capital gains?
   For 2026, the 0% federal long-term capital-gains bracket extends to $49,450 of taxable income for single filers and $98,900 for married couples filing jointly. Ordinary taxable income generally occupies the lower portion of the income stack first, with long-term capital gains layered on top. Only the portion of qualifying gains that remains within the 0% range receives the 0% federal rate.
4. How much of my Social Security is taxable in retirement?
   Depending on your combined income, none, up to 50%, or up to 85% of Social Security benefits may be included in taxable income for federal purposes. For single filers, the primary combined-income thresholds are $25,000 and $34,000. For married couples filing jointly, they are $32,000 and $44,000. An 85% taxable portion does not mean Social Security is taxed at an 85% tax rate.
5. What is the $6,000 tax deduction for seniors age 65 and older?
   For tax years 2025 through 2028, qualifying individuals age 65 and older may receive an enhanced federal deduction of up to $6,000 per person, or $12,000 for a married couple if both spouses qualify. The deduction begins phasing out when MAGI exceeds $75,000 for single filers or $150,000 for married couples filing jointly and is fully phased out above $175,000 and $250,000, respectively.
6. Can Roth conversions reduce taxes in retirement?
   Roth conversions can potentially reduce lifetime taxes when pre-tax retirement assets are converted during years when the taxpayer is in a relatively favorable tax bracket. Conversions can also reduce future pre-tax balances and RMDs. However, conversions create taxable income in the year they occur and can affect Social Security taxation, the enhanced senior deduction, Medicare IRMAA, and state income taxes.
7. How can I reduce taxes on required minimum distributions?
   Planning before RMDs begin can be important. Strategies may include taking intentional traditional IRA distributions during lower-income years, completing partial Roth conversions, and using qualified charitable distributions once eligible. Reducing the pre-tax account balance before RMD age can potentially reduce future required distributions, although the tax cost of implementing those strategies needs to be considered.
8. Do qualified charitable distributions reduce taxable income?
   A properly executed QCD allows an eligible IRA owner age 70 1/2 or older to send qualifying IRA assets directly to an eligible charitable organization. The qualifying distribution can generally be excluded from taxable income and can count toward an RMD once RMDs apply. A taxpayer cannot also claim a charitable deduction for the same QCD.
9. How can I avoid higher Medicare premiums in retirement?
   Medicare IRMAA is based on modified adjusted gross income and generally uses tax information from two years earlier. Managing the timing of Roth conversions, IRA distributions, capital gains, and other income may help retirees manage exposure to higher Part B and Part D premiums. However, avoiding IRMAA should not necessarily take priority over a tax strategy that produces greater long-term savings.
10. Should I move to a state with no income tax when I retire?
    State income taxes can be one factor when deciding where to live in retirement, particularly for retirees expecting substantial IRA distributions, Roth conversions, or investment income. However, taxes should be considered alongside housing costs, healthcare, family, lifestyle, and other financial factors. If changing domicile from a state such as New York, make sure the change is legitimate under the applicable residency and domicile rules before relying on the expected state-tax savings.