How to Reduce Taxes in Retirement

Smart Ways to Reduce Taxes in Retirement

If you’re nearing or already enjoying retirement, taxes are likely still on your mind. While your working years may be behind you, strategic planning doesn’t stop. Reducing taxes in retirement means making the most of what you’ve already saved while managing how and when you draw income. In Tennessee, where there’s no state income tax, many retirees assume they’re in the clear—but there are still important federal taxes to consider, especially around Social Security, investment withdrawals, and required minimum distributions (RMDs).

Common Retirement Tax Traps

One of the biggest surprises for retirees is that Social Security benefits can be taxable, depending on your income. If you’re also drawing from a traditional IRA, pension, or investment account, your income level might trigger taxes on up to 85% of your Social Security. Similarly, RMDs from traditional retirement accounts are taxed as ordinary income, which can bump you into a higher bracket if not planned carefully. Timing matters, and so does understanding how all your income sources interact.

Planning a Tax-Efficient Withdrawal Strategy

Creating a thoughtful withdrawal plan is one of the best ways to reduce your tax bill. Many retirees choose to blend income from different types of accounts each year—pulling from taxable, tax-deferred, and tax-free sources in a way that keeps their total taxable income within a lower bracket. Roth conversions can also be a valuable tool, especially during lower-income years early in retirement. This strategy allows you to pay taxes at a potentially lower rate now and enjoy tax-free withdrawals later.

Why Tax Planning Is Ongoing in Retirement

Too often, retirees think tax planning ends once they stop working. In reality, it becomes even more important. Decisions like when to start Social Security, whether to do a Roth conversion, and how to time capital gains all affect your annual tax outcome. Having a year-by-year plan helps avoid surprises and can preserve more of your money for the long haul. It also opens the door for strategic charitable giving, estate planning, and long-term care preparation.

Live Well, Keep More

Tennessee retirees often move here for the favorable tax environment—but federal taxes don’t go away. Working with an advisor who understands retirement income planning and tax strategy can help you navigate the years ahead with confidence.

Curious how these strategies apply to you? Contact us to schedule a tax strategy session and find out how you can keep more of what you’ve earned.