How to Keep More of What You Save
As you approach or enter retirement, how you withdraw your money can be just as important as how you saved it. By understanding how different income sources are taxed and strategically managing withdrawals, retirees can significantly reduce their lifetime tax burden. Here are the key strategies for optimizing your taxes in retirement.
Tax Optimization in Retirement
Your retirement tax rate isn’t fixed—you can control it through smart planning. Strategic withdrawals from pre-tax accounts, Roth accounts, and brokerage accounts can help you stay within favorable tax brackets and even qualify for 0% long-term capital gains rates. For example, married couples filing jointly in 2025 can have taxable income up to $96,700 and still qualify for a 0% federal tax rate on long-term capital gains and qualified dividends.
Brokerage Accounts and the 0% Capital Gains Zone
Standard brokerage accounts may not offer tax-deductible contributions, but they provide unique tax planning opportunities in retirement. If your taxable income is below the $96,700 threshold, you can realize up to $26,700 in long-term capital gains tax-free. With proper timing and income management, reinvesting these gains also resets your cost basis, helping reduce future tax liability.
401(k)s and Roth 401(k)s: Know Your Brackets
Choosing between a traditional and Roth 401(k) hinges on your current and expected future tax brackets. Roth contributions are taxed now but grow and withdraw tax-free later. Traditional contributions are pre-tax but taxable upon withdrawal. Also, employer matches are almost always pre-tax. For retirees who give charitably, Qualified Charitable Distributions (QCDs) from traditional IRAs after age 70½ can reduce taxable income and satisfy Required Minimum Distributions (RMDs).
HSAs: A Triple Tax Advantage
Health Savings Accounts (HSAs) are an underrated tool in retirement. They offer a triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After age 65, you can also use HSA funds for non-medical expenses without penalty (though income taxes apply, similar to a traditional IRA). For retirees facing rising healthcare costs, HSAs offer unmatched flexibility and tax efficiency.
Inheritances and Strategic Withdrawals
Inherited non-retirement assets receive a step-up in basis, erasing capital gains accrued during the decedent’s life. However, inherited IRAs and 401(k)s must be fully withdrawn within 10 years under current law. Spreading withdrawals over the full period and coordinating with your tax situation can prevent large spikes in taxable income and protect more of your inheritance.
Social Security: Timing is Everything
Up to 85% of your Social Security benefits may be taxable depending on your provisional income, which includes half your benefits plus all other taxable income and some non-taxable interest. With careful planning, you can time Social Security collection and manage withdrawals from other accounts to minimize the taxable portion. In most states, Social Security benefits are not taxed at all.
A Holistic Approach to Retirement Tax Planning
The best results come from coordinating your withdrawal strategy across all account types—traditional, Roth, HSA, brokerage, and inherited accounts—while staying mindful of Social Security taxation and charitable goals. Retirement isn’t just about having enough; it’s about using what you have wisely to maximize income, reduce taxes, and ensure long-term financial security.
You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.
Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.
