The First 3 Years of Retirement: 7 Financial Decisions That Matter More Than You Think

The first three years of retirement can offer valuable planning opportunities, particularly when your paycheck has stopped but Social Security and required minimum distributions have not started. Decisions about withdrawals, Roth conversions, investments, and Medicare often affect one another. Greenbush Financial Group recommends looking at these early retirement decisions as one coordinated plan rather than a series of separate choices.

Why the First Three Years Matter

When your paycheck stops, you suddenly have to decide where your income will come from.

Should you spend cash? Sell investments? Take money from your IRA? Start Social Security?

These decisions are connected.

An extra $50,000 IRA withdrawal, for example, can increase taxable income, reduce your Roth-conversion opportunity, affect capital-gains taxes, potentially increase future Medicare premiums, and reduce future RMDs.

The first few years of retirement may also be some of your lowest-income tax years. If you do nothing, some of those opportunities can disappear.

Consider Mark and Susan.

They are both 64 and retiring with $1.8 million:

• $1.2 million in traditional 401(k)s and IRAs

• $200,000 in Roth IRAs

• $300,000 in a brokerage account

• $100,000 in cash

They expect to spend about $90,000 per year after tax and have not started Social Security.

Their situation illustrates seven decisions that can shape the next several decades.

1. Decide Where Your Retirement Paycheck Comes From

There is no universal rule that says you should spend taxable accounts first and Roth accounts last.

Instead, ask:

Which combination of accounts gives us the income we need without creating unnecessary taxes?

Mark and Susan might fund part of their first year's spending from cash, dividends, and their brokerage account rather than automatically taking $90,000 from an IRA.

That could keep their taxable income lower and leave room for another strategy, such as a Roth conversion.

Retirees should also consider directing dividends and interest to cash instead of automatically reinvesting them.

A reasonable cash reserve depends on the household, but maintaining roughly 12 to 24 months of expected portfolio withdrawals in cash and short-term investments can provide flexibility during a market decline.

Key Insight: Your withdrawal strategy should be based on taxes, markets, and future income, not simply which account has the easiest transfer button.

2. Take Advantage of the Retirement Tax Window

For many retirees, there is a gap between their final paycheck and the beginning of Social Security and RMDs.

That can create unusually low taxable-income years.

Mark and Susan have $1.2 million in tax-deferred retirement accounts. If they leave that money untouched, it could grow substantially before RMDs begin.

Instead, suppose they convert $75,000 per year to Roth for their first three years.

They move:

$225,000 from tax-deferred accounts into Roth accounts.

They pay tax today, but future growth on those dollars occurs inside the Roth, and those converted dollars no longer contribute to their future traditional IRA RMD balance.

If $225,000 subsequently grew at 5% for eight years, it would become roughly $330,000.

The goal is not to convert as much as possible. A conversion can affect tax brackets, capital-gains taxes, Medicare premiums, and other parts of the plan.

The better question is:

How much can we convert at a tax rate we are comfortable paying today compared with the tax rate we may face later?

3. Coordinate Social Security With IRA Withdrawals

Social Security should not be considered separately from investment withdrawals.

Suppose Mark is the higher earner and has a $3,200 monthly benefit at full retirement age. Delaying until age 70 could increase that benefit by approximately 24%, before future cost-of-living adjustments.

But delaying means Mark and Susan need to fund those years from somewhere else.

That can be useful.

They might spend taxable assets while completing Roth conversions before Social Security begins. Later, the larger Social Security benefit reduces the amount the portfolio needs to provide.

There is also a survivor consideration.

If Mark dies first, Susan generally does not continue receiving both Social Security benefits. The higher benefit can therefore become particularly important to the surviving spouse.

Key Insight: Delaying Social Security is not always best. Health, longevity, taxes, portfolio size, and survivor needs all matter.

4. Coordinate Roth Conversions, Capital Gains, and Medicare

This is where retirement tax planning becomes a balancing act.

Suppose Mark and Susan own an investment worth $60,000 with a $30,000 cost basis.

Selling it creates a $30,000 long-term capital gain.

During a low-income retirement year, some or potentially all of that gain could qualify for the 0% federal long-term capital-gains rate, depending on their other income.

That could allow them to diversify the portfolio while increasing the cost basis of their taxable investments.

But there is a catch.

If they complete a large Roth conversion first, that additional income can reduce the amount of capital gains eligible for the 0% rate.

Medicare creates another consideration.

Medicare generally uses income from two years earlier when determining IRMAA surcharges. A large Roth conversion or capital gain today could therefore increase Medicare premiums later.

That does not automatically make the transaction a bad idea.

Sometimes paying additional tax or Medicare premiums today creates greater long-term savings.

The important part is knowing the tradeoff before making the decision.

5. Prepare for RMDs Before You Have RMDs

One of the biggest retirement mistakes is waiting until RMDs begin to start planning for them.

Mark and Susan already have $1.2 million in tax-deferred accounts at age 64.

If those accounts continue growing, future RMDs could create more taxable income than they actually need.

Before RMDs begin, they have more control through:

• Roth conversions

• Strategic IRA withdrawals

• Social Security timing

• Charitable planning

This becomes even more important when one spouse dies.

The surviving spouse may eventually file as single while still owning much of the same IRA assets. That means narrower tax brackets and lower Medicare IRMAA thresholds.

A Roth conversion today should therefore sometimes be evaluated against the survivor's future tax rate, not just the couple's current rate.

6. Have a Plan for a Bad Market in Year One

Imagine stocks fall 25% six months after Mark and Susan retire.

Their expenses do not fall 25%.

Where does their income come from?

This is why retirement portfolios should be designed differently from portfolios that are still accumulating.

If Mark and Susan need $50,000 annually from their portfolio and maintain $75,000 to $100,000 in cash and short-term investments, they may have roughly 18 to 24 months of withdrawals available without relying heavily on stock sales.

During a major decline, income could come from:

• Cash

• Short-term bonds

• Dividends and interest

• Investments that held up better

The goal is to avoid being forced to sell stocks after a major decline simply because the monthly bills are due.

This is called sequence-of-returns risk. Poor returns early in retirement can be particularly damaging when withdrawals are occurring at the same time.

That does not mean retirees should abandon stocks. A retirement lasting 25 or 30 years still needs long-term growth.

The objective is to balance short-term spending needs with long-term growth.

7. Plan for the Expenses and Life Changes That Do Not Fit the Spreadsheet

Retirement rarely follows a perfectly predictable annual budget.

Suppose Mark and Susan decide to spend $100,000 remodeling their home.

Taking $100,000 from an IRA could create a much larger tax bill, reduce Roth-conversion capacity, affect capital-gains taxation, and potentially increase future Medicare premiums.

Paying cash, selling taxable investments, taking an IRA distribution, or financing the project can each produce a different result.

The same planning applies to an RV, new vehicle, vacation home, or other major purchase.

Retirement is also a natural time to review:

• Beneficiaries

• Wills and trusts

• Powers of attorney

• Account titling

• Long-term-care funding

• Emergency reserves

• Charitable giving

Charitably inclined retirees may also benefit from donating appreciated securities, using donor-advised funds in certain situations, or eventually making qualified charitable distributions from IRAs after reaching the eligible age.

One practical question is especially useful for married retirees:

If one of us died tomorrow, could the other person manage everything?

The surviving spouse should know where accounts are held, how income is generated, where estate documents are located, and who to contact.

Option A vs. Option B: What Coordination Can Change

Consider Mark and Susan's first three years.

Option A: Autopilot

They withdraw whatever they need from their IRAs, claim Social Security relatively early, complete no Roth conversions, and wait until RMDs begin to worry about taxes.

Their plan may still work.

But several planning opportunities may disappear.

Option B: Coordinated Planning

Instead, they:

• Fund some spending from cash and taxable investments

• Convert approximately $225,000 to Roth over three years

• Delay the higher earner's Social Security when appropriate

• Realize selected capital gains during lower-income years

• Monitor Medicare IRMAA

• Maintain short-term reserves for market declines

They might actually pay more tax during their first three years.

That can be intentional.

They are potentially trading a higher tax bill today for smaller future RMDs, more Roth assets, a larger Social Security benefit, and greater flexibility for the surviving spouse.

That is the difference between minimizing taxes this year and managing taxes throughout retirement.

How Much Can You Safely Spend?

There is no single withdrawal percentage that answers this question.

Your sustainable spending depends on:

• Portfolio size

• Social Security and pensions

• Taxes

• Investment allocation

• Inflation

• Healthcare expenses

• Longevity

• Large future purchases

For Mark and Susan, the better question is not simply whether $90,000 is a safe percentage of $1.8 million.

It is:

How much does the portfolio need to provide before Social Security begins, and how much will it need to provide afterward?

Retirement income changes over time. Your spending plan should account for those changes.

The First Three Years: A Simple Checklist

Year One

Determine how much you can spend, establish where your retirement paycheck will come from, build cash reserves, review the portfolio, and calculate whether a Roth conversion makes sense.

Year Two

Recalculate taxes, Roth-conversion capacity, capital gains, Medicare exposure, and Social Security timing based on what actually happened during year one.

Year Three

Stress-test the plan for a major market decline, future RMDs, long-term-care costs, large purchases, and the death of either spouse.

What Opportunities Disappear If You Do Nothing?

This may be the most important question.

Doing nothing during the first few years of retirement may not create an immediate problem.

But you may lose:

• Lower-income years for Roth conversions

• Opportunities to realize gains at favorable tax rates

• Additional Social Security growth

• Opportunities to reduce future RMDs

• Years of planning while both spouses can use joint tax brackets

The cost may not show up today.

It may appear 10 or 15 years later.

Final Thoughts

The first three years of retirement are about more than replacing your paycheck.

Withdrawals affect taxes. Taxes affect Roth conversions. Roth conversions can affect Medicare. Social Security affects future withdrawals. Today's IRA balance affects future RMDs. And all of those decisions can look very different after one spouse dies.

There is no universal withdrawal order or Roth-conversion strategy.

At Greenbush Financial Group, we believe the opportunity is in coordinating these decisions around the household's complete retirement plan.

The first few years of retirement give you something valuable: choices.

The goal is to use those choices before they begin disappearing.

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

1. Which account should I withdraw from first in retirement?
   There is no universal order. The best approach may combine cash, taxable investments, traditional retirement accounts, and Roth accounts based on taxes, spending needs, future RMDs, and Social Security.
2. Should I take Social Security or spend investments first?
   It depends on longevity, taxes, portfolio size, and survivor needs. Spending investments first can sometimes create additional Roth-conversion opportunities while allowing Social Security benefits to grow.
3. Should I convert my IRA to Roth before RMDs?
   A partial Roth conversion may make sense if your current tax rate is attractive compared with the rate you or a surviving spouse could face later.
4. How much should I convert to Roth?
   Consider tax brackets, capital gains, Medicare IRMAA, state taxes, and future RMDs. The appropriate amount should generally be recalculated each year.
5. What happens if the market crashes right after I retire?
   Cash and short-term investments can provide spending money without requiring immediate stock sales. This is one reason retirement portfolios should be structured around both withdrawals and long-term growth.
6. Why should I worry about RMDs years before they begin?
   The years before RMDs often provide the most flexibility to reduce future tax-deferred balances through Roth conversions and strategic withdrawals.

This article is for educational purposes and uses simplified hypothetical examples. Tax laws, Medicare rules, investment returns, and individual circumstances can change. The examples are not intended as individualized tax, investment, or legal advice.

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.

The First Year of Retirement: 7 Financial Moves to Make…and 5 to Avoid

The first year of retirement is one of the most important financial transition periods you’ll ever experience. Decisions around withdrawals, Social Security, taxes, investments, and healthcare can affect your retirement income for decades. Many retirees focus on enjoying newfound freedom but overlook key planning opportunities that exist before year-end and before required distributions begin. At Greenbush Financial Group, we often see that the retirees who build confidence early are the ones who slow down and make intentional first-year decisions.

The First Year of Retirement Is a Transition Year, Not Just a Celebration Year

Retirement changes more than your schedule. It changes how your household generates income, pays taxes, handles market volatility, and manages financial decisions.

For decades, most people operated under a simple formula:

• Work

• Receive paycheck

• Save for retirement

• Repeat

Then retirement arrives, and suddenly everything reverses.

Now your investments may need to generate income. Tax planning becomes more flexible but also more important. Healthcare costs become more visible. Market declines can feel more emotional once paychecks stop.

The first year of retirement is often what we call an “adjustment year.” The decisions made during this period can shape:

• Future tax brackets

• Medicare premiums

• Portfolio longevity

• Social Security income

• Roth conversion opportunities

• Spending habits

• Confidence during market volatility

The goal is not perfection.

The goal is avoiding expensive mistakes while building a sustainable retirement income strategy.

7 Smart Financial Moves to Make During Your First Year of Retirement

1. Build a Retirement Paycheck Plan Before Taking Withdrawals

One of the biggest mistakes new retirees make is randomly pulling money from accounts as expenses arise.

Retirement income should be coordinated intentionally.

Before taking withdrawals, determine:

• How much monthly income you actually need

• Which accounts will fund that income

• How taxes will affect withdrawals

• Which accounts should remain invested longer

• How cash reserves will be handled

Many retirees discover their actual spending differs from what they expected.

The first year is often more expensive because of:

• Travel

• Home projects

• Healthcare changes

• Helping family

• Celebration spending

A paycheck-style withdrawal strategy can create structure and reduce emotional decision-making.

Example

A retired couple needs $7,000 per month after taxes.

They have:

• $1.2 million invested

• $700,000 in IRAs

• $300,000 in taxable accounts

• $200,000 in Roth IRAs

• No Social Security yet

Instead of withdrawing entirely from their IRA, they may benefit from:

• Using taxable savings first

• Realizing lower capital gains

• Keeping taxable income lower

• Preserving future Roth growth opportunities

The order of withdrawals matters more than many retirees realize.

2. Reevaluate Whether to Claim Social Security Immediately

Many retirees automatically claim Social Security as soon as work ends.

That decision can permanently reduce lifetime income.

For healthy retirees with adequate assets, delaying benefits can sometimes improve long-term retirement security.

Key factors include:

• Health and longevity expectations

• Spousal benefits

• Survivor income planning

• Tax brackets

• Portfolio withdrawal needs

• Other income sources

Important Note

Claiming early is not always wrong.

But the first year of retirement is the time to evaluate the decision carefully rather than defaulting to “I stopped working, so I should claim now.”

Example

A retiree eligible for $2,200/month at age 62 may receive roughly $3,900/month if delaying until age 70.

For married couples, this can significantly affect survivor income later.

3. Review Roth Conversion Opportunities Before Year-End

The years between retirement and Required Minimum Distributions (RMDs) can create unusually low-income tax years.

Those years may offer valuable Roth conversion opportunities.

This is one of the most overlooked planning opportunities in retirement.

Converting portions of a traditional IRA to a Roth IRA during lower-income years may help:

• Reduce future RMDs

• Lower future tax exposure

• Create tax-free income later

• Reduce widow’s tax risk

• Improve long-term tax flexibility

Example

A couple retires at 64 and delays Social Security until 67.

For several years, their taxable income may be significantly lower than during their working years.

They may intentionally convert enough IRA assets annually to “fill up” a lower tax bracket before:

• RMDs begin

• Social Security increases taxable income

• Medicare IRMAA thresholds become an issue

Key Insight

The first retirement year is often more valuable for tax planning than people realize because income may temporarily drop before other retirement income sources begin.

4. Review Medicare IRMAA Exposure Early

Many retirees are surprised when Medicare premiums increase because of prior-year income.

IRMAA stands for Income-Related Monthly Adjustment Amount.

Higher-income retirees can pay significantly more for Medicare Part B and Part D premiums.

Common triggers include:

• Large IRA withdrawals

• Roth conversions

• Capital gains

• Selling property

• Large bonuses during retirement year

Why This Matters in Year One

The retirement transition often creates unusual tax years.

Without planning, retirees can accidentally trigger higher Medicare premiums two years later.

Important Note

Sometimes triggering IRMAA still makes sense.

For example, a strategic Roth conversion today may still save substantial taxes later.

The key is understanding the tradeoff before making the move.

5. Keep a Larger Cash Reserve Than You Think You Need

The first few years of retirement are emotionally different from the accumulation years.

Market volatility can feel more stressful when paychecks stop.

A properly structured cash reserve can help retirees avoid selling investments during market declines.

This reserve may cover:

• 12–24 months of spending needs

• Major healthcare expenses

• Home repairs

• Unexpected family support

• Market downturns

What Many Retirees Get Wrong

Some retirees stay fully invested because they fear missing returns.

Others hold too much cash and reduce long-term growth potential.

The goal is balance.

A thoughtful reserve strategy can improve both flexibility and emotional confidence.

6. Recheck Your Investment Risk Now That You’re Retired

Many investors discover they were comfortable with risk only while employed.

Once retirement begins, market declines feel different.

This does not mean retirees should abandon growth investments entirely.

But it does mean portfolios should reflect:

• Withdrawal needs

• Time horizon

• Income stability

• Emotional tolerance for volatility

• Sequence-of-returns risk

What Is Sequence Risk?

Poor market returns early in retirement can create lasting damage when withdrawals are occurring simultaneously.

This is why investment structure matters more after retirement begins.

Common First-Year Mistake

Making aggressive investment changes during a market drop.

Some retirees panic after their first retirement correction and move heavily to cash after losses already occurred.

That can permanently damage long-term retirement sustainability.

7. Review Estate Documents and Beneficiaries

Retirement is a major life transition and an ideal time to revisit estate planning.

Review:

• Wills

• Trusts

• Powers of attorney

• Healthcare directives

• IRA beneficiaries

• Life insurance beneficiaries

Common Issue

Beneficiary designations often override wills.

We regularly see outdated beneficiaries remain unchanged for decades.

Also Important

Review how retirement accounts align with tax planning and legacy goals.

For some households, Roth accounts may be more attractive legacy assets than traditional IRAs because of future tax implications for heirs.

5 Financial Moves to Avoid During Your First Year of Retirement

1. Avoid Major Lifestyle Purchases Too Quickly

Many retirees make large purchases immediately after retiring:

• Vacation homes

• RVs

• Boats

• Major renovations

• Large gifts to children

The issue is not the purchase itself.

The issue is making irreversible financial decisions before understanding your long-term retirement spending pattern.

Better Approach

Give yourself time to observe:

• Actual spending

• Healthcare costs

• Tax changes

• Lifestyle adjustments

• Market conditions

Your first-year spending may not reflect your long-term retirement reality.

2. Avoid Claiming Social Security Without Running the Numbers

Social Security timing is often permanent.

Many retirees underestimate:

• Survivor implications

• Inflation protection

• Longevity risk

• Tax coordination opportunities

Even delaying benefits by a few years can substantially improve long-term retirement income in some situations.

3. Avoid Taking Large IRA Withdrawals Without Tax Planning

Large withdrawals can create ripple effects:

• Higher tax brackets

• Increased Medicare premiums

• Taxation of Social Security

• Reduced Roth conversion opportunities

Example

A retiree withdraws $150,000 from an IRA for home renovations and gifting.

That single decision could:

• Push income into higher brackets

• Trigger IRMAA surcharges

• Increase future tax exposure

Coordinating withdrawals over multiple years may create a better outcome.

4. Avoid Panic Decisions During Market Declines

The first market downturn after retirement can feel emotionally different.

This is often when retirees second-guess their entire plan.

Selling after declines can lock in losses and reduce future recovery potential.

Better Approach

Build a plan before volatility happens:

• Maintain cash reserves

• Diversify appropriately

• Understand withdrawal flexibility

• Revisit spending priorities

The goal is not eliminating volatility.

The goal is reducing the need for emotional decisions during volatility.

5. Avoid Treating Retirement Like a Permanent Vacation

Many retirees spend aggressively during the first year before understanding what sustainable retirement spending actually looks like.

This does not mean retirement should be restrictive.

But retirees benefit from observing:

• Real monthly expenses

• Healthcare changes

• Inflation effects

• Travel patterns

• Long-term lifestyle costs

The first year should help establish sustainable habits and confidence.

A Real-World First-Year Retirement Scenario

John and Susan retire at 64.

They have:

• $1.2 million invested

• $80,000 in cash

• A paid-off home

• No pension

• Estimated spending needs of $7,000/month after taxes

Their first instinct is:

• Claim Social Security immediately

• Withdraw additional income entirely from IRAs

• Renovate the home

• Increase stock exposure after hearing “retirees need growth”

Instead, after planning carefully, they decide to:

• Delay Social Security until age 67

• Use taxable savings for part of their income

• Complete partial Roth conversions annually

• Maintain 18 months of cash reserves

• Reduce portfolio volatility modestly

• Delay large home projects for one year

The Result

They create:

• Lower projected lifetime taxes

• Higher future guaranteed income

• Better Medicare premium management

• Greater flexibility during market declines

• More confidence about long-term sustainability

None of the decisions were dramatic.

But together, they improved the odds of long-term retirement success.

Questions to Review Before December 31 of Your First Retirement Year

Your first retirement year may create unique tax planning opportunities before year-end.

Questions worth reviewing include:

• Should you do a Roth conversion this year?

• Are capital gains unusually low this year?

• Should you harvest gains before Social Security begins?

• Are Medicare IRMAA thresholds an issue?

• Are you withholding enough taxes from withdrawals?

• Should you rebalance investments?

• Are charitable giving strategies appropriate?

• Have beneficiaries been updated?

These decisions are often easier and more valuable before future retirement income sources begin.

Common First-Year Retirement Mistakes

Here are several patterns we frequently see:

• Spending before building a withdrawal strategy

• Claiming Social Security too quickly

• Ignoring Roth conversion windows

• Taking unnecessary taxable withdrawals

• Underestimating healthcare costs

• Overreacting to market volatility

• Maintaining outdated investment allocations

• Forgetting beneficiary reviews

• Making emotional investment changes

The first year of retirement often sets the tone for future decision-making.

Final Thoughts

Your first year of retirement is not just about leaving work. It is about transitioning from accumulation to distribution, from saving to creating sustainable income.

The retirees who navigate this transition best are usually not the ones making dramatic moves.

They are the ones slowing down, reviewing tax opportunities carefully, building intentional withdrawal strategies, and avoiding irreversible mistakes too early.

At Greenbush Financial Group, we often find that the most successful retirement transitions come from thoughtful planning rather than reacting emotionally to headlines, market volatility, or uncertainty.

The goal of year one is not perfection.

It is building confidence, flexibility, and a financial foundation that can support the next several decades.

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.

FAQ

1. What is the biggest financial mistake retirees make in their first year?
   One of the biggest mistakes is withdrawing money from retirement accounts without a coordinated tax and income strategy. Poor withdrawal sequencing can increase taxes, Medicare premiums, and long-term portfolio stress.
2. Should I take Social Security as soon as I retire?
   Not necessarily. Many retirees benefit from delaying benefits, especially if they expect longer life expectancy or want to maximize survivor income for a spouse.
3. Should retirees use cash first before withdrawing from investments?
   In many cases, maintaining a cash reserve for near-term spending can reduce the need to sell investments during market declines. The right approach depends on taxes, market conditions, and withdrawal needs.
4. Why are Roth conversions often valuable early in retirement?
   Early retirement years may temporarily lower taxable income before RMDs and Social Security begin. This can create opportunities to convert IRA assets at lower tax rates.
5. How much cash should retirees keep during the first year?
   Many retirees benefit from holding 12-24 months of spending needs in cash or short-term reserves, especially during the retirement transition period.
6. Can retirement withdrawals increase Medicare premiums?
   Yes. Large IRA withdrawals, Roth conversions, and capital gains can increase income enough to trigger IRMAA surcharges for Medicare Part B and Part D.
7. Should retirees change investments immediately after retiring?
   Not automatically. However, retirement is a good time to reassess whether your portfolio still aligns with your income needs, risk tolerance, and withdrawal strategy.
8. What should retirees review before the end of their first retirement year?
   Retirees should review taxes, Roth conversions, Medicare income thresholds, investment allocations, withdrawal strategies, and beneficiary designations before December 31.

2026 Medicare IRMAA Brackets: What Triggers Higher Premiums and How to Avoid

Medicare IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge added to Medicare Part B and Part D premiums when your income exceeds certain thresholds. These surcharges are based on your Modified Adjusted Gross Income (MAGI) from two years prior. At Greenbush Financial Group, our analysis shows that proactive tax and withdrawal planning can help retirees avoid or minimize IRMAA and significantly reduce long-term healthcare costs.

What Is Medicare IRMAA and How Does It Work?

IRMAA is an additional premium Medicare beneficiaries pay if their income exceeds specific limits.

Key Facts

• Applies to Medicare Part B and Part D

• Based on income from two years prior

• Uses Modified Adjusted Gross Income (MAGI)

• Adjusted annually for inflation

Example

Your 2026 Medicare premiums are based on your 2024 income.

This lag creates planning opportunities, especially in early retirement years.

2026 IRMAA Income Limits and Surcharge Brackets

IRMAA is triggered when your income crosses certain thresholds.

2026 Estimated IRMAA Thresholds 

At Greenbush Financial Group, we emphasize that even $1 over a threshold can trigger a significantly higher premium.

What Counts as Income for IRMAA (MAGI)?

IRMAA is based on Modified Adjusted Gross Income, which includes more than just wages.

Included Income Sources

• IRA and 401(k) withdrawals

• Capital gains from investments

• Dividends and interest

• Rental income

• Social Security (partially taxable portion)

• Roth conversions

Important Note

Tax-free municipal bond interest is also included in MAGI for IRMAA purposes.

How Much Are IRMAA Surcharges?

IRMAA increases both Part B and Part D premiums.

Example Impact

• Standard Part B premium (baseline)

• IRMAA can increase premiums by hundreds of dollars per month per person

• Part D surcharges are smaller but still meaningful

Key Insight

Over a 10–20 year retirement, IRMAA can add up to tens of thousands of dollars in additional healthcare costs if not managed properly.

Planning Strategies to Reduce or Avoid IRMAA

Strategic income planning is the most effective way to manage IRMAA.

1. Manage Your Taxable Income Each Year

• Stay below key IRMAA thresholds when possible

• Avoid large one-time income spikes

2. Use Roth Conversions Strategically

• Convert funds in lower-income years before Medicare

• Reduce future taxable income and RMDs

3. Time Large Withdrawals Carefully

• Spread income over multiple years

• Avoid triggering IRMAA in a single year

4. Leverage Roth Accounts

• Roth withdrawals do not increase MAGI

• Provides tax-free income flexibility

5. Consider Capital Gains Timing

• Harvest gains in lower-income years

• Offset gains with losses when possible

At Greenbush Financial Group, we often build multi-year tax projections to help clients stay below IRMAA thresholds.

IRMAA Planning Before and After Retirement

Before Retirement (Ages 55–63)

• Ideal window for Roth conversions

• Lower income years create planning opportunities

• Reduce future IRMAA exposure

Early Retirement (Before Medicare)

• Control income levels carefully

• Balance withdrawals across accounts

After Age 65

• Monitor RMDs and income levels

• Use Roth withdrawals to manage thresholds

• Plan ahead for future income spikes

What Happens If Your Income Drops?

You may be able to appeal IRMAA if your income has decreased due to certain life events.

Qualifying Life-Changing Events

• Retirement

• Marriage or divorce

• Death of a spouse

• Loss of income-producing property

You can file an appeal with Social Security to request a lower premium.

Common IRMAA Mistakes to Avoid

• Ignoring IRMAA when doing Roth conversions

• Taking large IRA withdrawals in a single year

• Not planning for RMDs

• Overlooking capital gains impact

• Assuming Medicare premiums are fixed

At Greenbush Financial Group, we often see that IRMAA surprises retirees who focus only on taxes without considering healthcare costs.

Final Thoughts

IRMAA is one of the most overlooked retirement expenses, yet it can significantly increase your Medicare costs. The key is not just minimizing taxes in a single year but managing income over time to avoid crossing key thresholds.

At Greenbush Financial Group, our analysis shows that proactive planning around withdrawals, Roth conversions, and income timing can help reduce IRMAA and improve overall retirement outcomes.

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

1. What does IRMAA stand for?
   Income-Related Monthly Adjustment Amount, a surcharge on Medicare premiums based on income.
2. What income is used to calculate IRMAA?
   Modified Adjusted Gross Income (MAGI) from two years prior.
3. Can Roth withdrawals trigger IRMAA?
   No, qualified Roth withdrawals do not increase MAGI.
4. Can IRMAA be appealed?
   Yes, if you have a qualifying life-changing event such as retirement or loss of income.
5. How can I avoid IRMAA surcharges?
   By managing taxable income, using Roth strategies, and avoiding large income spikes.