20 Tax-Saving Strategies for Retirees
Retirees can reduce their tax burden by using smart financial strategies to keep more of their savings.
- Chris Graciano
- 4 min read
Taxes can take a big dent out of retirement income, but with the right planning, you can keep more of your money. From managing withdrawals to taking advantage of tax credits, there are many ways to minimize what you owe. This list breaks down 20 practical strategies retirees can use to reduce their tax bills and maximize savings.
1. Delay Social Security for Lower Taxes
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Waiting until age 70 to claim Social Security. It increases your monthly check while reducing taxable income in early retirement. Since up to 85% of benefits may be taxable, delaying withdrawals can keep you in a lower bracket.
2. Withdraw Taxable Funds First
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Using money from regular investment accounts before touching tax-deferred accounts allows retirement funds to keep growing. This approach also helps spread out taxable income over multiple years.
3. Convert Traditional IRAs to Roth IRAs
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A Roth conversion shifts pre-tax savings into a tax-free account, reducing future tax liabilities. Converting in lower-income years minimizes tax costs.
4. Use the Standard Deduction Wisely
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By structuring withdrawals carefully, you can keep taxable income below the standard deduction limit. For 2024, retirees can deduct up to $14,600 (single) or $29,200 (married).
5. Donate Using a Qualified Charitable Distribution (QCD)
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After age 70.5, retirees can donate up to $100,000 per year directly from an IRA to a charity. These donations count toward RMDs and are not included in taxable income.
6. Manage Required Minimum Distributions (RMDs) Smartly
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Starting at age 73, retirees must take RMDs from tax-deferred accounts, which can push them into higher brackets. Taking smaller withdrawals earlier or converting funds to a Roth IRA can help manage this tax hit.
7. Move to a Tax-Friendly State
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Some states do not tax retirement income, making relocation a powerful way to lower taxes. Florida, Texas, and Nevada are popular choices for retirees seeking tax relief.
8. Stay Within Lower Tax Brackets
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By controlling income levels, retirees can keep tax rates lower. Strategic withdrawals from different account types can help manage bracket creep.
9. Harvest Investment Losses to Offset Gains
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Selling underperforming investments allows retirees to offset capital gains taxes. This strategy, known as tax-loss harvesting, reduces overall taxable income.
10. Use Roth IRA Withdrawals for Tax-Free Income
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Unlike traditional IRAs, Roth IRA withdrawals (after age 59.5) are tax-free if the account has been open for at least five years. This provides retirees with a tax-efficient income stream.
11. Claim the Saver’s Credit If Eligible
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Some retirees who continue contributing to retirement accounts can qualify for the Saver’s Credit. This credit reduces taxable income by up to $2,000 for married couples.
12. Keep Income Below Medicare Surcharge Limits
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Medicare premiums increase for higher-income retirees, so managing taxable income can prevent extra costs. Keeping Modified Adjusted Gross Income (MAGI) below surcharge thresholds avoids higher premiums.
13. Use a Health Savings Account (HSA) for Tax-Free Medical Withdrawals
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HSAs allow tax-free withdrawals for medical expenses, making them a great retirement planning tool. If funded before retirement, they provide a pool of money for healthcare costs without increasing taxable income.
14. Spread Out Large Withdrawals Over Multiple Years
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Withdrawing large sums in a single year can push retirees into a higher tax bracket. Spreading distributions over several years keeps tax rates manageable.
15. Delay 401(k) RMDs If Still Working
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Retirees still employed past the age of 73 can delay RMDs from their current employer’s 401(k). This lets their retirement savings grow tax-deferred for longer.
16. Follow the 4% Withdrawal Rule for Tax Efficiency
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Withdrawing 4% annually from retirement savings ensures a steady income while keeping taxes in check. This method balances income needs with long-term tax efficiency.
17. Consider Annuities for Tax Deferral
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Certain annuities allow retirees to defer taxes on investment gains until withdrawals are taken. This can help manage taxable income over time.
18. Take Loans Instead of Taxable Withdrawals
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For retirees needing cash, borrowing against assets can prevent taxable withdrawals. Home equity loans or life insurance loans provide tax-free options.
19. Time Capital Gains for Lower Taxes
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Selling investments in years with lower income ensures capital gains are taxed at lower rates. Long-term holdings (over one year) qualify for reduced tax rates.
20. Work with a Tax Expert for Personalized Advice
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Tax rules are complex and constantly changing, making professional guidance invaluable. A financial planner can identify strategies tailored to individual needs.