Retirement Planning Guide

How to reduce taxes
in retirement

Most retirees pay more in taxes than they need to. These seven strategies — with real numbers and thresholds — can save you tens of thousands over a 30-year retirement.

Why Taxes Surprise People Roth Conversions Withdrawal Sequencing Social Security Timing Managing RMDs State Tax Planning Capital Gains Management Charitable Giving See Your Tax Picture
Section 01

Why retirement taxes
surprise people

Most people assume their taxes will drop in retirement. For many, the opposite happens. You stop earning a paycheck, but the IRS doesn't stop collecting. The sources of income change — Social Security, IRA withdrawals, RMDs — but the tax bill often stays stubbornly high, and sometimes increases.

Traditional 401(k) and IRA withdrawals are taxed as ordinary income. Every dollar you pull from a tax-deferred account is taxed at your marginal rate, just like a paycheck. A $70,000 withdrawal from a traditional IRA for a single filer in 2026 means roughly $6,500 in federal tax (after the $16,100 standard deduction), pushing you into the 22% marginal bracket.

Up to 85% of your Social Security can be taxable. If your provisional income (AGI + nontaxable interest + half of Social Security) exceeds $34,000 for single filers or $44,000 for married couples, up to 85% of your benefit is added to taxable income. Most retirees with any meaningful IRA withdrawals cross this threshold easily.

Required minimum distributions force taxable withdrawals. Starting at age 73, the IRS requires you to withdraw a percentage of your traditional IRA and 401(k) each year — whether you need the money or not. A $1 million traditional IRA generates roughly $37,700 in forced income at age 73, rising to $43,700 by age 78 as the distribution percentage increases.

Medicare IRMAA surcharges add hidden costs. If your modified AGI exceeds $109,000 (single) or $218,000 (married filing jointly) in 2026, you'll pay higher Medicare Part B and Part D premiums. The surcharge ranges from $81 to $487 per month per person, effectively a stealth tax on higher-income retirees.

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The retirement tax trap is real
The combination of Social Security taxation, RMDs, and IRMAA surcharges creates effective marginal tax rates that can exceed 40% for middle-income retirees — higher than what many paid while working. The strategies below are designed to avoid this pileup by spreading income across years and account types.
Section 02

Roth conversions
before RMDs

The years between retirement and age 73 are a golden window for tax planning. Your employment income has stopped, Social Security may not have started, and RMDs haven't kicked in yet. This is when your taxable income is likely at its lowest — and when Roth conversions deliver the most value.

A Roth conversion moves money from a traditional IRA or 401(k) to a Roth IRA. You pay income tax on the converted amount now, but all future growth and withdrawals from the Roth are tax-free. The goal is to convert at today's lower rate to avoid tomorrow's higher rate.

Concrete example: A married couple, both age 63, retires with $800,000 in traditional IRAs and $150,000 in Roth accounts. Their only income is $20,000 from a part-time job. In 2026, the married filing jointly standard deduction is $32,200, and the 12% bracket tops out at $100,800 of taxable income. They can convert roughly $50,000 per year to Roth and stay well within the 12% bracket — paying roughly $4,000 in federal tax on each conversion. Over 8 years (ages 63 to 70), they move $400,000 from traditional to Roth, paying approximately $32,000 in total conversion taxes at the 12% rate.

Without conversions, that $400,000 stays in the traditional IRA, grows to roughly $530,000 by age 73, and gets pulled out as RMDs at the 22% bracket or higher — costing $30,000 to $50,000 more in lifetime taxes. The math is clear: pay 12% now or pay 22%+ later. Doing nothing feels like saving money but you are just deferring a bigger bill.

Cumulative federal tax paid ages 63–83 with and without Roth conversions Two-line chart showing cumulative federal tax. With conversions: rises steadily from $0 to $32K by age 70, flattens, then resumes climbing slowly to $82K by age 83. Without conversions: stays at $0 until age 73, then rockets upward to $116K by age 83. The lines cross around age 76 and the gap widens to $34K — the lifetime tax savings from converting. Cumulative Federal Tax Paid Federal income tax only · same couple · running total over 20 years $0 $20K $40K $60K $80K $100K $120K RMDs begin Breakeven age ~78 · ~$50K total $116K $82K $34K $4K/yr at 12% $0 tax — feels free 63 65 67 69 71 73 75 77 79 81 83 Age Without conversions $0 early, then 22%+ on forced RMDs With conversions pay 12% now, smaller RMDs later Simplified · assumes 5% growth, SS at 70, MFJ standard deduction
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Don't convert too much in one year
Converting beyond $133,000 MFJ / $66,500 single in 2026 (the standard deduction plus the 12% bracket) means paying 22% on the excess. That's still potentially worthwhile if you expect RMDs to push you into the 24% or 32% bracket, but the savings are smaller. Use a year-by-year projection to find the optimal conversion amount for each year. Full Roth conversion guide →
Section 03

Withdrawal
sequencing

The order in which you draw from different account types has a massive impact on your lifetime tax bill. The conventional approach — taxable first, then tax-deferred, then Roth — is a reasonable starting point, but a blended withdrawal strategy often works better.

The conventional order: Draw from taxable brokerage accounts first (favorable capital gains rates), then tax-deferred accounts (ordinary income rates), then Roth accounts last (tax-free). This preserves the Roth's tax-free growth for as long as possible.

Why blended is often better: Instead of draining one account type completely before touching the next, you withdraw from multiple accounts each year to "fill" lower tax brackets deliberately. For example, a single retiree might withdraw $16,100 from a traditional IRA (offset by the standard deduction — $0 tax), then another $34,300 spanning the 10% and 12% brackets, then take the rest from Roth or taxable accounts. This approach keeps you out of the 22% bracket entirely, which would kick in above $50,400 for single filers in 2026.

Concrete example: A single retiree needs $55,000/yr. Option A: withdraw all $55,000 from a traditional IRA — federal tax of roughly $4,400 (after deduction, spans the 10% and 12% brackets). Option B: withdraw $30,000 from the traditional IRA ($1,420 in tax) and $25,000 from a Roth IRA ($0 tax). Option B saves roughly $3,000 per year. Over 25 years, that's over $75,000 in tax savings — money that stays invested and growing.

Withdrawal sequencing comparison: all-traditional vs blended strategy Side-by-side waterfall comparing two ways to meet a $55,000 annual spending need. Option A withdraws all $55,000 from a traditional IRA, resulting in $38,900 taxable income and $4,436 federal tax. Option B blends $30,000 traditional with $25,000 Roth, resulting in only $13,900 taxable income and $1,436 federal tax — saving $3,000 per year. Withdrawal Sequencing Comparison Single filer · $55K spending need · 2026 brackets Option A All from Traditional IRA Option B Blended: Traditional + Roth $0 $10K $20K $30K $40K $50K 12% bracket $27,300 10% bracket $16,100 std deduction $55K traditional $38,900 taxable 12% bracket space 10% bracket $16,100 std deduction $25K Roth · not taxable $30K traditional $2,300 in 12% $11,600 in 10% $4,436 federal tax $1,436 federal tax $3,000/yr $75K+ over 25 years Both options meet the same $55,000 spending need · Only the tax bill changes
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Withdrawal order changes over time
The optimal withdrawal sequence isn't static. Before Social Security starts, you may lean heavier on traditional IRA withdrawals to fill low brackets. After RMDs begin at 73, you may shift to Roth withdrawals to avoid stacking income. A year-by-year projection shows you the best mix at every age. Full withdrawal sequencing guide →
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See your tax-optimized withdrawal plan
Model your withdrawal sequence across account types and see the tax impact year by year. Pre-loaded with example inputs you can adjust.

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Section 04

Social Security
timing and taxation

When you start Social Security affects not just your benefit amount, but your entire tax picture. The IRS uses a two-step process: first, it runs a test called “provisional income” to decide how much of your Social Security is taxable. Then it feeds that answer into the normal tax calculation. Provisional income is not a tax — it's a gate that determines how much of your benefit gets added to your taxable income. Understanding these mechanics reveals why small income changes can trigger outsized tax increases.

How Social Security taxation actually works

The provisional income formula: Take your AGI (excluding Social Security), add any tax-exempt interest, add half of your Social Security benefit. That total is your provisional income. The IRS compares it to two thresholds — a lower and an upper — to determine how much of your benefit is taxable (see the worked example below):

Provisional income Single MFJ SS taxable
Below lower threshold < $25,000 < $32,000 0%
Between thresholds $25K–$34K $32K–$44K Up to 50%
Above upper threshold > $34,000 > $44,000 Up to 85%

These thresholds have never been adjusted for inflation since they were enacted — the lower thresholds in 1984, the upper in 1993. Each year, more retirees cross them with perfectly ordinary income levels.

The "tax torpedo" — and why it's misunderstood

In the phase-in range between 50% and 85% taxability, something counterintuitive happens. Each additional dollar of income can cause $1.85 in new taxable income — the dollar itself plus 85¢ of Social Security that becomes taxable alongside it. If you're in the 22% bracket, the effective marginal rate on that dollar is 22% × $1.85 = 40.7%.

This is widely called the "tax torpedo," and it's real — but frequently misunderstood. There is no 40.7% tax bracket. Your bracket stays at 22%. What changes is the amount of income being taxed: the provisional income test quietly enlarges your taxable base.

The diagrams below show exactly how the two-lane process works, and a full worked example with real numbers. The example couple stays in the 12% bracket, so the torpedo effect is milder than the 40.7% headline — but it shows exactly how the mechanism works.

Provisional income is a test, not a tax — the two-lane process A two-column flowchart showing Lane 1 (the provisional income test) and Lane 2 (the normal tax calculation). Lane 1 calculates provisional income, compares it to thresholds, and determines what percentage of Social Security is taxable. That answer is handed to Lane 2, which assembles taxable income, subtracts the standard deduction, and applies regular brackets. The torpedo is not a special rate — it is normal brackets applied to a larger taxable income base. Provisional income is a test, not a tax It runs in a separate lane, asks one question, then hands the answer to the regular tax engine Lane 1 · the provisional income test Lane 2 · the normal tax calculation Calculate provisional income AGI + tax-exempt interest + ½ SS benefit Compare to thresholds Single: $25K / $34K MFJ: $32K / $44K Determine one number: Below lower threshold → 0% of SS taxable Between thresholds → up to 50% taxable Above upper threshold → up to 85% taxable This is ALL the provisional income test determines. Start with all taxable income wages · pension · dividends · IRA withdrawals Add taxable SS (from Lane 1) 0% · 50% · or 85% of your SS benefit Subtract standard deduction MFJ: $32,200 in 2026 Apply regular tax brackets 10% / 12% / 22% / 24% — normal rates Your tax bill Completely normal calculation The torpedo isn't a special rate. Lane 1 adds a large chunk of SS to taxable income, which gets taxed at your normal bracket in Lane 2. The spike comes from a bigger base, not a higher rate. Your bracket rate stays the same — the torpedo just gives it more income to work on. Full worked example — provisional income two-lane calculation A complete step-by-step worked example for a married couple with $40K Social Security, $24K pension, and $20K IRA withdrawal. Step 1: provisional income of $64,000 exceeds both MFJ thresholds. The IRS formula ramps: 50% of the $12K between $32K and $44K equals $6,000, plus 85% of the $20K above $44K equals $17,000, for $23,000 taxable SS. Step 2: pension $24K plus IRA $20K plus taxable SS $23K equals $67,000 gross income, minus $32,200 standard deduction equals $34,800 taxable income. Step 3: 10% on first $24,800 equals $2,480 plus 12% on remaining $10,000 equals $1,200, for a total federal tax of $3,680. Normal brackets only — no special torpedo rate exists. Full worked example · MFJ couple $40K Social Security · $24K pension · $20K IRA withdrawal · 2026 standard deduction Step 1 · provisional income test ½ of SS benefit $20,000 Pension income $24,000 IRA withdrawal $20,000 Provisional income $64,000 Under $32K → 0% taxable $32K–$44K → 50% of excess Over $44K → 85% of excess 50% × $12K (32K–44K) = $6,000 85% × $20K (44K–64K) = $17,000 Taxable SS = $23,000 Step 2 · assemble taxable income Pension income $24,000 IRA withdrawal $20,000 Taxable SS (step 1) $23,000 Total gross income $67,000 − standard deduction $32,200 Taxable income $34,800 Step 3 · apply normal brackets 10% on first $24,800 $2,480 12% on next $10,000 $1,200 Total federal tax $3,680 What's taxed SS benefit $40K total $23K enters tax calc (58%) $17K stays tax-free (42%) Tax breakdown $2,480 10% $1,200 12% $3,680 Normal brackets only No special rate The torpedo multiplier — trace $1 through both lanes Same MFJ couple, same two-lane process. An extra $1 of IRA withdrawal enters Lane 1, raising provisional income to $64,001. Since they are above the $44K upper threshold, 85% of that extra dollar — $0.85 — becomes additional taxable Social Security. In Lane 2, the extra $1 IRA plus $0.85 taxable SS equals $1.85 more taxable income. At their 12% marginal bracket, tax on that dollar is $0.222 — an effective 22.2% rate. In the 22% bracket the same multiplier produces a 40.7% effective rate. Now add $1 more from IRA — trace it through both lanes Same couple, same process — watch one dollar multiply Step 1 · provisional income test ½ of SS benefit $20,000 Pension income $24,000 IRA withdrawal $20,001 Provisional income $64,001 Under $32K → 0% taxable $32K–$44K → 50% of excess Over $44K → 85% of excess 85% × $1 = $0.85 more SS becomes taxable Taxable SS = $23,000.85 Step 2 · assemble taxable income Pension income $24,000 IRA withdrawal $20,001 Taxable SS (step 1) $23,000.85 Total gross income $67,001.85 − standard deduction $32,200 Taxable income $34,801.85 Step 3 · apply normal brackets Extra taxable income $1.85 × 12% bracket = $0.222 The multiplier You earned $1.00 IRS taxed you on $1.85 Effective rate on that $1 22.2% not the 12% you'd expect The torpedo isn't a rate — it's the 85% multiplier in Lane 1 amplifying whatever bracket you're already in. If you are in the 22% bracket, the same math results in a 40.7% rate on that dollar.
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The 40.7% "torpedo rate" isn't real
No such bracket exists. What's real: $23K of SS was added to taxable income by the step-1 test, then taxed at 10% and 12% like everything else. Earn $1 more from IRA → $1.85 more taxable → 12% × $1.85 = 22.2¢ effective cost on that dollar. This effect is much more dramatic if you fall in the 22% tax bracket ($1.85 more taxable → 22% × $1.85 = 40.7¢ effective cost on that dollar).

Why delaying Social Security has a hidden tax benefit

If you delay from 62 to 70, your benefit increases by roughly 77%. But the tax benefit is subtler: during the delay years (62–70), you can draw from IRAs at lower brackets and do Roth conversions without Social Security inflating your provisional income. Once your larger benefit starts at 70, you may have a smaller traditional IRA balance, meaning lower RMDs and a lower overall tax burden despite the higher Social Security check.

The strategic window is the gap between retirement and claiming Social Security. Every dollar you convert to Roth or withdraw from traditional accounts during this period faces lower taxes because provisional income is zero — there's no Social Security in the formula yet. Learn more about when to start Social Security.

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Three ways to manage the torpedo zone
If your provisional income is between $32,000 and $44,000 (MFJ), you're in the torpedo zone where effective marginal rates spike. Strategies: (1) keep provisional income below $32,000 by using Roth withdrawals instead of traditional, (2) do Roth conversions before Social Security starts to reduce future traditional IRA balances, or (3) push well above $44,000 where the marginal rate normalizes. The worst place to be is in the middle.
Section 05

Managing
required minimum distributions

Required minimum distributions begin at age 73 under SECURE 2.0. The IRS calculates your RMD by dividing your December 31 traditional account balance by a life expectancy factor from the Uniform Lifetime Table. At 73, the factor is 26.5, meaning you must withdraw about 3.77% of your balance. By age 80, the factor drops to 20.2 (4.95%), and by 85, it's 16.0 (6.25%).

The problem isn't the RMD itself — it's the forced taxable income it creates. A $1.2 million traditional IRA at age 73 requires a $45,300 withdrawal, taxed as ordinary income. Combined with Social Security, this can push you into the 22% bracket or higher, trigger IRMAA surcharges, and make 85% of your Social Security taxable.

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Roth conversions before 73

Every dollar converted to Roth before 73 is a dollar that never generates an RMD. Converting $400,000 from traditional to Roth between ages 63 and 72 eliminates roughly $15,000 to $25,000/yr in forced RMD income for the rest of your life. This is the single most effective RMD management strategy.

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Qualified charitable distributions (QCDs)

Starting at age 70½, you can transfer up to $105,000 per year directly from your IRA to a qualified charity. QCDs satisfy your RMD requirement but are excluded from taxable income entirely. If you're already donating to charity, routing gifts through QCDs instead of writing checks can save thousands in taxes annually.

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Still-working exception

If you're still employed and don't own more than 5% of the company, you can delay RMDs from your current employer's 401(k) until you actually retire. This doesn't apply to IRAs or previous employers' 401(k)s, but it can defer a portion of RMDs for people who work past 73.

⚠️
The penalty for missing RMDs

Failing to take your full RMD triggers a 25% excise tax on the amount not withdrawn (reduced from 50% by SECURE 2.0). If corrected within two years, the penalty drops to 10%. With a $45,000 RMD, missing it entirely means an $11,250 penalty — on top of the income tax you'll still owe when you do withdraw.

Section 06

State
tax planning

Federal taxes get the most attention, but state income taxes can add 3% to 13%+ on top of your federal bill. For retirees with flexibility about where they live, state tax planning is one of the highest-impact moves available.

Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Several others — like Illinois and Pennsylvania — exempt most or all retirement income from state tax even though they have an income tax on wages.

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Moving from California to Florida

California's top marginal rate is 13.3%, with a 9.3% rate starting at just $68,351 (single). A retiree withdrawing $80,000/yr from a traditional IRA in California pays roughly $4,500 to $5,500 in state tax. In Florida: $0. Over 25 years, that's $112,000 to $137,000 in savings. California tax details →

⭐
Retiring in Texas

Texas has no state income tax. Social Security, IRA withdrawals, 401(k) distributions, pension income — all untaxed at the state level. Property taxes are higher than average (1.6% to 2.2% of home value), but for retirees with significant portfolio income, the income tax savings typically far outweigh higher property taxes. Texas tax details →

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Florida: no income tax + homestead

Florida combines no state income tax with a homestead exemption that caps property tax assessment increases at 3% per year. For retirees, this means predictable housing costs alongside zero state tax on all retirement income. It's the most popular retirement relocation destination for a reason. Florida tax details →

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Illinois: flat tax but retirement-friendly

Illinois has a 4.95% flat income tax, but exempts Social Security, pension income, and distributions from IRAs and 401(k)s from state tax. For retirees whose income is primarily from retirement accounts, the effective state tax rate is often close to zero — making it competitive with no-tax states for retirement income specifically. Illinois tax details →

Changing your state of residence is a significant decision that involves more than taxes — proximity to family, cost of living, healthcare access, and quality of life all matter. But if you're already considering a move, understanding the state tax implications can help you make a more informed choice.

Section 07

Tax-loss harvesting
and capital gains management

Taxable brokerage accounts offer unique tax planning opportunities that tax-deferred and Roth accounts don't. The key is managing when you realize gains and losses to minimize your tax bill.

The 0% long-term capital gains bracket: In 2026, single filers pay 0% on long-term capital gains up to $48,350 of taxable income, and married filing jointly up to $96,700. This means a retired couple with $96,700 or less in total taxable income (after deductions) can sell appreciated stock and pay zero federal tax on the gains. If your only income is Social Security and small IRA withdrawals, you may have significant room in this 0% bracket.

Tax-loss harvesting: When investments in your taxable account decline, selling them "harvests" the loss. You can use up to $3,000 in net capital losses per year to offset ordinary income, and carry unlimited losses forward to future years. In retirement, this is especially valuable — $3,000 in losses offsets $3,000 of IRA withdrawals, saving $360 to $720 in federal tax depending on your bracket.

Tax-gain harvesting: The flip side. If you're in the 0% LTCG bracket, you can deliberately sell appreciated assets, pay no tax on the gain, and re-purchase at the higher cost basis. This "resets" your basis, reducing future taxable gains. A couple with $50,000 in unrealized gains could realize all of it tax-free if their other taxable income is low enough.

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Watch the wash sale rule
If you sell a security at a loss and buy a "substantially identical" security within 30 days (before or after), the IRS disallows the loss. When tax-loss harvesting, either wait 31 days to repurchase or buy a similar (but not identical) fund — for example, swapping a total market index for an S&P 500 index.
Section 08

Charitable
giving strategies

If you already give to charity, restructuring how you give can generate significant tax savings without changing the total amount you donate.

Qualified charitable distributions (QCDs): After age 70½, you can transfer up to $105,000 per year directly from your traditional IRA to a qualified charity. The distribution satisfies your RMD, is excluded from taxable income (it never hits your AGI), and the charity receives the full amount. For a retiree in the 22% bracket, a $10,000 QCD saves $2,200 compared to taking the RMD as income and then donating from your bank account. QCDs also keep your AGI lower, which can reduce Social Security taxation and avoid IRMAA surcharges.

Donor-advised funds (DAFs): A DAF lets you make a large lump-sum contribution in one year (getting the full tax deduction that year) and then distribute the money to charities over time. This is especially powerful in high-income years — for example, the year you do a large Roth conversion. Contributing $30,000 to a DAF in a year when your income spikes from a conversion gives you a $30,000 deduction right when you need it most.

Bunching deductions: The 2026 standard deduction is $16,100 (single) or $32,200 (MFJ). If your total itemized deductions (state/local taxes capped at $10,000, mortgage interest, and charitable gifts) fall near the standard deduction threshold, you may benefit from "bunching" — making two years' worth of charitable gifts in one year to exceed the standard deduction, then taking the standard deduction the next year. This effectively converts non-deductible giving into deductible giving every other year.

Section 09

See your
tax picture

Tax planning in retirement isn't about any single strategy — it's about how all seven strategies interact with your specific balances, income sources, and timeline. A $50,000 Roth conversion makes sense in one year and is wasteful in another. The optimal withdrawal sequence changes when Social Security starts. State tax savings depend on how much income you're actually drawing.

Drawdown Arc models your federal and state taxes year by year, showing exactly how withdrawals, Social Security, RMDs, and account balances interact over a 30+ year retirement. You can see when RMDs push you into a higher bracket, how Roth conversions change your long-term trajectory, and what your after-tax spending power actually looks like at every age.

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Related guides

Roth conversion strategy → Which accounts to withdraw from first → When to start Social Security →

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