Tax Strategy in Retirement
If you’ve been contributing regularly to qualified retirement plans like 401(k)s and IRAs, you may be looking at a sizable nest egg as you approach retirement age. Unfortunately, you’ll probably have a significant tax liability too and could lose 25–30% of these assets to taxes. Millions of Baby Boomers are in this situation, so you’re not alone in wondering how this happened and what can be done.
Our Philosophy & Approach to Tax-Efficient Retirement Planning
1. We believe tax reduction is a major consideration in planning for retirement income
It’s not just gross income but net after-tax income that determines how well you live in retirement. We want to reduce your tax obligation so you can keep more of your income to spend on your needs.
2. We look at your lifetime tax obligation, not just your annual tax bill
Your retirement may last for decades. We believe a big-picture, long-term view of your tax situation is necessary to make the best recommendations for your financial future.
3. We encourage you to take action now, before tax rates increase
Tax rates and brackets aren’t static for long, and we think increases are in the offing for 2026 and beyond. Advance planning can be critical to giving less to Uncle Sam. If a Roth conversion is in your future, you may want to take action before taxes increase, required minimum distribution begin at age 72, and wealth transfer occurs.
Unfortunately, almost everyone who’s retiring today heard the same message for decades: You’ll pay taxes on qualified retirement savings after you step out of the workforce and your tax bracket is lower. Instead, the opposite is true. You paid no income taxes whatsoever on contributions or earnings for years and years, so withdrawals for retirement income and minimum distribution requirements will be fully taxable. Chances are you’ll be paying Uncle Sam far more than you bargained for. The same goes for your non-spouse beneficiaries. With recent rule changes, beneficiaries who inherit tax-deferred plans (with the exception of spouses) must pay the total income taxes within 10 years. Just think about the implications for higher earning adult children whose tax bracket is already high.
It’s also important to consider where U.S. tax rates may be headed in the future. Without Congressional action, there’s speculation that the administration is eyeing additional tax increases to reduce the federal deficit and support new social programs. If that comes to pass, your tax burden will increase.
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How We Can Help You Design a Tax-Efficient Strategy for Retirement Income
Fortunately, paying a high tax rate isn’t mandatory for retirees. There are steps you can take to manage your tax situation efficiently. Johnson Brunetti can help you gain tax relief on income from qualified plans, Social Security, and corporate pensions. We can also assist you in planning for tax-efficient wealth transfer.
Our strategies include spreading out your tax liability over a number of years or diversifying your savings across a mix of tax-deferred, taxable, and tax-free accounts. Using a Roth conversion can be a smart move for many pre-retirees as can directing future savings to a Roth account.
Income taxes are a complex subject, particularly within the context of retirement plans.
We’ll put our knowledge and experience to work as we address your biggest tax questions:
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