Tax Strategies to Help Your Savings Last
By JCA on February 17, 2025
by Scott M. Dougan for the Beacon
The intricacies of tax planning are a critical component of your overall retirement strategy. Minimizing taxes in retirement isn’t just about reducing today’s tax bill — it’s about ensuring that your hard-earned money lasts longer and that you can draw from your assets efficiently.
By applying a logical, data-driven approach, you can create a retirement tax strategy that maximizes your income and minimizes unnecessary tax burdens.
The tax landscape changes as you transition from earning a salary to drawing income from different sources, such as Social Security, pensions, retirement accounts and investments. Without a solid plan, taxes can eat away at your retirement income, leaving less for your lifestyle and goals.
Here are the key elements of tax planning as you approach retirement:
Managing tax brackets. As your income sources shift, it’s critical to understand how to stay within favorable tax brackets. Drawing too much from tax-deferred accounts, such as a 401(k) or traditional IRA, can push you into a higher tax bracket, leading to a larger tax bill. Strategic withdrawals can help you optimize your tax liability.
Timing of withdrawals. Deciding when to tap into different accounts is a central component of tax minimization. For example, delaying withdrawals from tax-deferred accounts until later years could make sense if you expect your income to decrease in retirement, moving you into a lower tax bracket.
State taxes. State income tax laws vary widely. If you plan to move in retirement, consider the tax implications of your new location. Some states have no income tax, while others may tax retirement income at higher rates. Accounting for state taxes in your retirement plan could save thousands over time.
Several strategies can help minimize taxes in retirement. These techniques ensure that you’re not only reducing your tax burden today but also extending the longevity of your savings for years to come.