Smarter Taxes After 65: Retirement Tax Strategies That Can Significantly Cut Your Tax Bill in 2026
Retirement offers unique tax planning opportunities that most people never explore fully. With updated tax provisions for 2025 and 2026, retirees can reduce taxable income using a mix of strategies that go well beyond simply claiming Social Security and drawing from retirement accounts.
Higher Standard Deductions for Seniors
For the 2025 tax year (returns filed in 2026), the standard deduction has increased to $15,750 for single filers and $31,500 for married couples filing jointly. People aged 65 and older can also claim the regular additional age-based standard deduction (about $2,000 for singles) plus a new bonus deduction of up to $6,000 under recent tax law changes. These can stack, meaning eligible seniors can significantly increase their total deductions and reduce taxable income at the federal level. Married couples where both spouses qualify may claim up to $12,000 in senior bonus deductions on top of the base standard deduction.
Tax-Loss and Tax-Gain Harvesting
Market volatility presents opportunities to optimize taxes through both loss and gain harvesting.
Tax-loss harvesting involves selling investments that have declined in value to realize a capital loss, which can offset capital gains or up to $3,000 of ordinary income per year. This strategy can reduce taxable income while rebalancing a portfolio.
On the flip side, tax-gain harvesting can be useful in years when taxable income is low (common early in retirement). Retirees, especially married couples, may be able to realize long-term capital gains of up to roughly $89,250 tax-free (based on 0% capital gains thresholds for 2025–2026, subject to specific income limits) without triggering federal tax on those gains.
Roth Conversions and Tax Arbitrage
Converting funds from traditional IRAs or 401(k) accounts to Roth IRAs is a powerful strategy that involves paying tax now to avoid bigger taxes later. Roth accounts grow tax-free and do not require required minimum distributions (RMDs), helping control taxable income in later years.
Roth conversions are most effective when a retiree’s taxable income is relatively low typically early in retirement or before RMDs kick in. While taxes are due at conversion, this strategy can help retirees stay in lower tax brackets and reduce future exposure from large RMDs.
Charitable Giving Techniques
Charitable giving can benefit the community and reduce taxes:
Donor Advised Funds (DAFs) let retirees make one large contribution in a single year, claim the deduction now, and distribute donations over time.
Qualified Charitable Distributions (QCDs) allow individuals aged 70½ and older to transfer up to $100,000 per year directly from an IRA to a qualified charity. The transfer is excluded from taxable income and counts toward RMD requirements a double tax benefit.
Understanding Social Security Taxation
Social Security benefits may be partially taxable depending on combined income levels (adjusted gross income + nontaxable interest + half of Social Security). Current IRS rules still tax up to 85% of Social Security benefits for higher-income retirees. A new senior bonus deduction of up to $6,000 ($12,000 for couples) created by recent legislation can help keep some retirees below the income thresholds where Social Security becomes taxable.
This senior deduction is available for tax years 2025 through 2028, and it applies whether taxpayers itemize or take the standard deduction. It phases out at higher incomes, so retirees near income limits should model scenarios to see how to best use it.
Putting It All Together
Tax planning in retirement isn’t just about one strategy it’s about coordination. Combining higher standard deductions, strategic Roth conversions, loss and gain harvesting, QCDs, and a smart understanding of Social Security taxation can make a meaningful difference in after-tax retirement income.
Professional guidance is recommended, especially if a retiree’s financial profile includes significant investment assets, part-time work income, or complex distributions. With thoughtful planning, retirees can keep more of what they’ve worked for and enjoy a tax-efficient retirement lifestyle.
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.
