How to Minimize Your Taxes in Retirement

June 18, 2024

When you think about retirement, you probably don’t think much about taxes. You’ve been paying your fair share for decades, so when it comes time to retire, you are looking to minimize your tax burden as much as possible. By understanding these factors, you can keep your tax bill low and keep more of your money in retirement and for your heirs.

Understand your retirement income

Income taxes don’t change in retirement. So, your tax rate will depend on the income you expect in your later years. Consider the different income streams that you may have in retirement, including:

  • Job income
  • Social Security
  • Pension
  • Retirement plan withdrawals

Once you have an idea of how much money you’ll receive from each income stream, you can check the current year’s IRS tax rates to determine which tax bracket you will be in, and how much you will owe in federal income taxes for the year.

Differentiate between pre-tax and post-tax investments

The type of savings you’ve chosen will play a role in how you’re taxed in retirement. Pre-tax retirement savings, like a traditional IRA, are taxed in retirement when you withdraw your money, but a post-tax plan, like a Roth IRA, is taxed when you contribute, not in retirement. Using both types of retirement savings can give you flexibility to better manage your taxes in retirement.


  Pre-tax investment

  Post-tax investment

When are taxes paid?

  When money is withdrawn in    retirement

  When contributions are made


  Defer your taxes until              retirement

  Pay no taxes on earnings

Required minimum distributions (RMDs)

  Starting at age 73


Early withdrawal penalties

  10% for withdrawals before      age 59.5

  10% for withdrawals before      age 59.5 for earnings only


  Traditional IRA and 401(k)

  Roth IRA and 401(k)


Look into tax-efficient investments

Outside of your tax-advantaged retirement savings, there are other investments that can provide tax benefits in retirement. These include:

  • Municipal bonds: Debt issued by states, cities, or local governments that are generally exempt from federal income tax and state income tax (depending on your location and the issuing state).
  • Tax-managed funds: Mutual funds or ETFs that are managed to minimize taxable distributions and keep your tax burden low.

Consider relocating

Retirement can bring with it many changes. Sometimes that includes relocating to downsize your home or for a change of scenery. One reason to consider relocation is to move to a state with no income tax. If you move to Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, you’ll pay no state income taxes and potentially keep more of your savings for yourself.  But keep in mind that other taxes, like property and sales taxes, may reduce or even eliminate the benefit of paying no state income tax.

Get support if you need

Tax law can be complex and difficult to understand, and while you think you’re making good financial decisions, you may not be factoring all of the tax implications into these decisions. A financial or tax advisor can help you understand how taxes play a role in your savings and retirement decisions.