The Ultimate Guide to Tax Planning Strategies for Retirees

April 27, 2022

Retirement is a time to get tax planning right. This article will explore tax strategies that could help save taxpayers money and help them retire on their terms. There are many strategies applicable for tax planning. It is important to understand how they work and how to utilize them. Taxpayers who are planning ahead and know what to expect can help ensure that they have accounted for every opportunity to utilize tax efficient strategies. When retirement comes, the last thing taxpayers want to worry about is how much they owe in taxes. Taxpayers may be able to reduce their taxes by utilizing any of the tax-saving strategies mentioned in this article.

How can retirees save on taxes?

There are many ways retirees can save on taxes, the first step should be getting informed on tax planning strategies. Taxpayers should understand how to navigate the tax code, and have a solid understanding of what they can do that will allow them to save on taxes before retirement day arrives.

Financial advisor doing paperwork

There are many basic facts about taxes to learn and understand before retirement. Topics such as social security, tax credits & brackets, roth IRA, tax diversification, and penalties. Getting familiar with these can allow for a better and more informed tax plan. Taxpayers may be able to reduce their taxes by understanding how the tax code works, as well as utilizing any of the strategies that may be applicable to them.

There are so many tax-efficient strategies for retirees to use. If you are too busy or don’t have any interest in learning about the Tax Code, It could be beneficial to work with an experienced financial advisor who understands the Tax Code when determining the best strategy for you.

Tax planning for retirement should start as early as possible. Having a plan in place before retirement should allow you to make the most of your tax situation now and in the future. Tax planning services are designed to help address a range of needs, including maximizing income from pensions and social security benefits; utilizing investment accounts such as IRAs or 401ks; minimizing taxes on Social Security benefits. Applying tax benefits available to you can help you make the most of your retirement years. Working with professionals can help you reach this. They understand when it is best to take benefits and when it is best to continue working. Taxpayers can use tax strategies to help reduce taxes and help them retire.

Taxpayers who are planning ahead and know what to expect can help ensure that they have accounted for; saving on taxes by using tax credits, deductions, and Roth IRAs.

Tax optimization strategies for individuals

Tax optimization strategies for individuals can help them with retirement savings. Taxpayers can reduce the taxes they owe by utilizing tax-efficient strategies such as qualified retirement accounts and Roth IRAs, charitable donations, and deductions for medical expenses. Tax optimization strategies also include tax deferral of capital gains on investments that are not sold until after a taxpayer retires to minimize the amount of tax they owe. Taxpayers may be able to reduce their taxes by utilizing any of these strategies to help them retire on their terms. 

Plan ahead when it comes to Social Security

Consider how much income you’ll be collecting and the tax liabilities that come with it. Investigate deductions before taking or foregoing Social Security benefits. Because if you don’t, you could be penalized. Taxpayers may want to consult with a professional before taking Social Security benefits in order to make sure they are maximizing the retirement savings and minimizing taxes on their income.

The IRS provides a calculator to help you determine whether delaying your retirement benefit may save more money on taxes later if other factors such as income levels don’t change much over several years. Explore various scenarios when deciding between claiming benefits at 66 or 70, or other ages. Think of your family situation, projected life expectancy, and continuing income when deciding the best age for you to start your benefits.


Be aware of Tax Brackets and Tax Filing

Consider filing tax returns as married filing jointly to take advantage of the tax brackets and deductions for both spouses, which can help reduce taxable income significantly. Taxpayers who are married and filing jointly will generally pay less tax than if they were single. Taxpayers may also be able to save by qualifying for tax credits, and deductions that are only available to married couples. 

For the 2020 tax year, there are seven federal income tax brackets starting at 10%, with tax rates of 12%, 22%, 24%, 32%, 35% and 37%. Besides the federal tax brackets, Taxpayers may also be eligible for state and local income tax rates that are different from the federal tax rate. 

federal tax brackets
Source: 2021 Federal Income Tax Rates – Tax Year 2020 –

Look into Tax Credits

Consider tax credits such as Earned Income Tax Credit or Child tax credit that may be available depending on one’s financial situation. In retirement, taxpayers may be able to take advantage of credits that they couldn’t before. Tax credits provide an opportunity for taxpayers to reduce their tax liability. Therefore it is important for taxpayers to maximize tax credits when possible. 

When it comes time for tax planning, taxpayers should do research on the available options and consider tax credits in their tax planning strategy. Staying well informed and using tax credits when possible can help save on taxes. When retirement comes, you may be able to increase your monthly income by taking advantage of deductions and tax credits. 

One tax strategy to consider may be, consider a Roth IRA

Consider a Roth IRA conversion ladder strategy by converting part of your traditional IRA each year (to potentially minimize tax liability) until it reaches $0. By paying taxes on the converted amount earlier, you may potentially save money and pay less in taxes on the same assets at a higher tax rate in the future. This can help ensure retirement funds last much longer than current savings rates could provide.

As mentioned before, there are multiple federal tax brackets. These brackets could change yearly and potentially go up. Taxpayers who are planning to retire should proactively consider these tax brackets. Tax credits and deductions may also change depending on the taxpayer’s situation, so it is important for them to stay well informed about what they can do as a retired person.

One way for retirees to reduce taxes in retirement may be by converting existing (traditional) IRA or 401k into a Roth. Taxpayers should be aware of the tax bracket they might fall under in retirement and consider that in their tax planning strategy to help ensure they are making wise decisions for their future financial situation.


Another tax-saving strategy is tax diversification

Using multiple retirement vehicles, such as a taxable, tax deferred, and tax-free accounts to invest, can help diversify your tax liability.

Taxpayers who are retired should make sure they have a variety of retirement accounts. Taxpayers have many different tools at their disposal and need to make sure they are taking full advantage of them.

Tax diversification should be considered in retirement because taxpayers may find themselves subject to different taxes at this stage of life. Taxpayers who are retired may have a higher income and therefore be subjected to increased federal, state and local income tax rates. Tax credits may also change depending on the taxpayer’s situation, so it is important for them to stay well informed about what they can do as a retired person.

This means that you have the opportunity to take advantage of tax breaks that can be beneficial, like tax credits or deductions such as mortgage interest deduction, real estate property taxes, and charitable donations. Many retirees are also eligible for Social Security benefits, which may lower their taxable income in retirement if they decide not to take those benefits upfront at 66 years old but instead wait until 70 years old (or beyond).

Be on the lookout for penalties when it comes to your retirement accounts

financial advisor near me walking in the park

When an individual withdraws from a 401k account before the age of 59½, there is a penalty fee levied by the IRS (unless an exception applies). The amount of this withdrawal penalty varies depending upon what type of transaction occurs (e.g., a lump sum or an early distribution) and the tax bracket of the individual at that time; however, it is important to note that all individuals who withdraw money from their retirement account before 59½ will be subject to this penalty fee with few exceptions.

The tax code is complex, and tax rates are constantly changing. As new laws are passed, it’s important for retirees to work with an experienced financial advisor who understands tax planning strategies so they can be confident that they’re following the best strategy possible.

Our financial advisors weave in tax-efficiency strategies within retirement plans for our clients.

If you have any questions or would like to simply have a conversation about how tax planning can support you in your retirement planning, schedule a complimentary meeting with one of our financial advisors.

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This content is provided for informational purposes only and is not intended to serve as the basis for financial decisions. We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.
Our firm is not permitted to offer tax or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. A Roth Conversion is a taxable event and may have several tax related consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. MAS and E.A. Buck Financial Services are not affiliated entities. AEWM and E.A. Buck Financial Services are not affiliated entities. 1250520 – 2/22.

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