Pillar Guide
Tax Planning for Retirement
Author: Brett R. Henderson, CIMA®, CPFA®, CRPS®, CEPA®, AIF®, CLU®, BFA™
Last Updated: March 2026
Fiduciary Financial Advisor | Tax-Efficient providing retirement planning services
Quick Answer
How can I reduce taxes in retirement?
You can reduce taxes in retirement through strategic withdrawal sequencing from different account types (taxable, tax-deferred, tax-free), Roth conversions during low-income years, tax-loss harvesting, qualified charitable distributions from IRAs, and careful timing of Social Security benefits.
What Are the Three Tax Buckets in Retirement?
According to the Internal Revenue Service (IRS), retirement accounts fall into three distinct tax categories. Understanding these buckets is essential for tax-efficient retirement planning:
Tax-Deferred (Traditional)
401(k), Traditional IRA, 403(b), 457(b)
Traditional-account contributions may be pre-tax or deductible depending on plan type, eligibility, income, and participation in an employer plan. Growth is generally tax-deferred, and taxable withdrawals are generally taxed as ordinary income.
Tax-Free (Roth)
Roth IRA, Roth 401(k)
Contributions are made with after-tax dollars. Qualified withdrawals may be federal income-tax-free when applicable requirements are met; state tax treatment may differ.
Taxable (Brokerage)
Individual/Joint brokerage accounts
No special tax treatment on contributions. Dividends and gains taxed annually. Long-term gains taxed at preferential rates.
What Is Tax-Efficient Withdrawal Sequencing?
The order in which you withdraw from different account types can significantly impact your lifetime tax burden. The traditional approach suggests:
- Taxable accounts first: Benefit from lower capital gains rates
- Tax-deferred accounts second: Allow continued tax-deferred growth
- Tax-free accounts last: Maximize tax-free growth in Roth accounts
However, a more sophisticated approach considers annual tax bracket optimization, Roth conversion opportunities, and required minimum distribution (RMD) planning.
What Is a Roth Conversion and When Should I Do One?
A Roth conversion involves moving money from a traditional IRA or 401(k) to a Roth IRA and paying taxes on the converted amount. Potential timing considerations may include:
- Early retirement: Before Social Security and RMDs begin
- Market downturns: Convert more shares at lower values
- Low-income years: Stay within lower tax brackets
- Before tax rate increases: Lock in current lower rates
Roth Conversion Example
What Are Required Minimum Distributions (RMDs)?
The SECURE 2.0 Act changed RMD rules significantly. Starting in 2024, RMDs begin at age 73 (increasing to 75 in 2033). RMDs apply to traditional IRAs, 401(k)s, and other tax-deferred accounts.
How Can Charitable Giving Reduce Taxes in Retirement?
For retirees age 70½ or older, Qualified Charitable Distributions (QCDs) allow you to donate up to $105,000 annually directly from your IRA to qualified charities. According to the IRS, QCDs:
- Count toward your RMD but aren't included in taxable income
- Reduce your adjusted gross income (AGI)
- May help avoid Medicare IRMAA surcharges
- Provide tax benefits even if you don't itemize deductions
"Tax planning is one area where coordinated guidance can be meaningful for some investors. Research suggests that coordinated tax-management techniques; including Roth conversions during low-income years, tax-loss harvesting, and withdrawal sequencing; may improve after-tax outcomes for certain households. The actual benefit varies significantly based on account size, tax bracket, investment mix, applicable tax law in the year of implementation, and individual circumstances. This is not a guarantee of any specific tax savings, return improvement, or comparative ranking against other planning areas. (Source: Vanguard Advisor's Alpha research; latest update.)"
Brett R. Henderson, CIMA, CPFA, CRPS
Fiduciary Financial Advisor, SWE90, Retirement tax optimization specialist
2026 Federal Income Tax Brackets (Married Filing Jointly)
| Tax Rate | Taxable Income Range | Tax Owed | Strategy Tip |
|---|---|---|---|
| 10% | $0 – $24,800 | 10% of taxable income | Evaluate planning choices in light of individual circumstances |
| 12% | $24,801 – $100,800 | $2,480 + 12% over $24,800 | Evaluate Roth-conversion effects with tax advisors |
| 22% | $100,801 – $211,400 | $11,600 + 22% over $100,800 | Consider bracket effects and individual circumstances |
| 24% | $211,401 – $403,550 | $35,932 + 24% over $211,400 | Review tax-management choices with tax advisors |
| 32% | $403,551 – $512,450 | $82,048 + 32% over $403,550 | Review deductions and timing with tax advisors |
| 35% | $512,451 – $768,700 | $116,896 + 35% over $512,450 | Evaluate charitable strategies when appropriate |
| 37% | Over $768,700 | $206,583.50 + 37% over $768,700 | Coordinate planning with qualified tax advisors |
Source: IRS Revenue Procedure 2025-32, as modified by Revenue Procedure 2025-45. Brackets apply to 2026 taxable income and are adjusted periodically.
Roth Conversion: When It Makes Sense
| Feature | Convert Now | Wait / Don't Convert |
|---|---|---|
| Current Tax Bracket | Lower than expected in retirement | Already in a high bracket |
| Time Horizon | 10+ years until withdrawal | Need funds within 5 years |
| Tax Payment | Can pay taxes from non-retirement funds | Would need to use IRA funds for tax |
| RMD Concern | Want to reduce future RMDs | RMDs not a concern |
| Estate Goal | Leave tax-free inheritance | No estate planning need |
Tax and legal disclosure: Neither Brett Henderson nor Vanderbilt Financial Group provides tax or legal advice. Please consult with your tax and/or legal advisors regarding your personal circumstances.
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Frequently Asked Questions
How can I reduce taxes in retirement?
You can reduce taxes in retirement through strategic withdrawal sequencing, Roth conversions during low-income years, tax-loss harvesting, qualified charitable distributions from IRAs, and careful timing of Social Security benefits.
What is a Roth conversion and when should I do one?
A Roth conversion involves moving money from a traditional IRA or 401(k) to a Roth IRA and paying taxes on the converted amount. The best time is typically during low-income years, such as early retirement before Social Security begins.
What taxes do retirees pay on Social Security?
Up to 85% of Social Security benefits can be taxable depending on your combined income. If combined income exceeds $34,000 (single) or $44,000 (married), 85% of benefits are taxable. Strategic planning can minimize this tax.
When do I have to take required minimum distributions?
Under SECURE 2.0, RMDs begin at age 73 (increasing to 75 in 2033). You must take your first RMD by April 1 of the year following the year you turn 73, and subsequent RMDs by December 31 each year.
What is a qualified charitable distribution (QCD)?
A QCD allows retirees age 70½ or older to donate up to $105,000 annually directly from their IRA to charity. QCDs count toward RMDs but aren't included in taxable income, providing significant tax benefits.
Optimize Your Retirement Tax Strategy
Brett Henderson focuses on tax-efficient retirement income strategies. Each engagement is tailored to the client's facts and applicable tax law; results vary and are not guaranteed.
Schedule a Tax Planning ReviewDisclosure: This content is for educational purposes only and does not constitute tax advice. Tax laws are complex and subject to change. Please consult with a qualified tax professional for advice specific to your situation. Brett R. Henderson is a registered representative offering securities through Vanderbilt Securities, LLC, Member FINRA/SIPC.