How to Reduce Taxes in Retirement

| March 2, 2026

How you receive income in retirement may change but taxes persist. Withdrawals, required minimum distributions (RMDs), estate planning, evolving laws, and more can affect your taxes, creating new complexities for retirees. To prepare for these situations, we’ll explain several strategies you can use to help provide flexibility and reduce taxes in retirement.

How Taxes May Continue in Retirement

There are various areas where taxes come into play in retirement, from Social Security taxation to RMDs. Here are common tax areas retirees should be aware of and where thoughtful planning can make a difference:

Required Minimum Distributions

RMDs begin at age 73 for those born between 1951 and 1959 or 75 for those born after 1960.1 These are IRS-mandated withdrawals from certain accounts, such as IRAs or 401(k) plans. RMDs do not apply to Roth IRAs or 401(k)s. RMDs are taxed as ordinary income, so managing your balances is essential to reducing your future taxes.

Social Security Income

A portion of your Social Security benefits could be subject to federal taxes, depending on your combined income. Timing your income withdrawals can help you manage how much of your benefits are taxed.

State Income Taxes

If you live in California, the state taxes retirement income, such as pensions and 401(k) distributions, as ordinary income based on your total income, filing type, and residency status. Social Security, however, is not taxed.

Property Taxes

While you may no longer have a mortgage in retirement, property taxes continue regardless of your income. In some high-cost states, taxes may continue to increase based on state rules and reassessments. For retirees, property taxes may compete with other new retirement expenses, such as healthcare, or require downsizing or relocating.

Capital Gains on Investment Income

When you begin drawing from brokerage accounts, you may be subject to capital gains taxes on appreciated investments you sell. Understanding the different tax treatments for various accounts and how long to hold assets to achieve a more favorable tax rate is critical.

Medicare Premiums

Medicare premiums are based on your modified adjusted gross income from two years prior.2 If you have a higher income, an income-related monthly adjustment amount (IRMAA) or surcharge is added to your premium. Managing your income in retirement can help you stay in lower tax brackets and keep your premiums lower. 

Gray Divorce

Divorce after 50, or gray divorce, can entail certain tax consequences without proper planning, making the division of resources, retirement, and overall financial planning more complicated. Splitting assets can trigger taxes, switching to a single filing status could affect tax brackets and Medicare premiums, and dividing retirement accounts could result in early withdrawal penalties if not executed correctly.

Charitable Giving

Gifting has several tax implications in retirement that can affect your RMDs, your heirs’ tax liability, and deduction opportunities. Retirees can consider strategies, such as qualified charitable distributions (QCDs), bunching donations, and donor-advised funds, which can help reduce taxable income while supporting important causes.

Evolving Tax Law

As tax legislation shifts, for example, as we’ve seen under the One Big Beautiful Bill Act, it’s important to understand how it will fit into your existing plan or require changes, affecting your income, deductions, and timing. For example, the bonus senior deduction3 allows eligible retirees to deduct up to $6,000 ($12,000 for married filing jointly) in 2026, further reducing taxable income.

Example #1: Develop a Tax-Diversified Withdrawal Strategy

An opportunity in retirement is income flexibility if a retiree has several income sources. Spreading assets across various account types can offer tax diversification, allowing retirees to pull from different accounts at optimal planning times. Developing a coordinated withdrawal strategy in retirement between your various income sources, such as 401(k)s and IRAs, for example, can help you manage your tax liability while supporting your income needs. 

A financial advisor can help you develop a personalized withdrawal plan, which may include the following strategies or a combination of solutions, such as:

The Bucket Strategy

This involves withdrawing funds in a sequence across taxable, tax-deferred, and tax-free accounts. Deciding which order depends on your income needs, tax bracket, and other factors. For example, a common sequence is to draw from taxable investment accounts first, such as a brokerage account, then from tax-deferred accounts, and finally from tax-free accounts. This allows tax-deferred growth to continue compounding and preserves tax-free growth in an account like a Roth IRA for last use.

Managing RMDs

Determining whether to take IRA withdrawals before RMDs begin, or when to do a Roth conversion, can help manage future RMDs. By gradually reducing pre-tax accounts, retirees may be able to reduce their future taxable income rather than facing large, forced withdrawals and subsequent tax liability later.

Timing Income

“Filling” a tax bracket involves generating income during low-income years, so you can pay some taxes at a lower rate than later, when you’re potentially in a higher tax bracket, helping smooth your tax liability over time. For example, retirees could do a partial Roth conversion or take RMDs before they’re required to help prevent being pushed into higher tax brackets later.

These strategies assume diversified income sources, so retirees aren’t forced to rely on a single source. Every situation is different and requires a full review of your financial picture. An advisor can help you determine which strategies fit your needs and goals.

Example #2: Consider a Roth Conversion During Low-Income Years

During early retirement and before RMDs begin, your income may be temporarily lower than in your working years. This income dip can present a tax opportunity when planned and timed strategically through a Roth conversion. It involves converting a portion of your traditional IRA to a Roth IRA, so you pay taxes at a lower rate than you might later. Here’s how it works and may benefit you:

  • You’ll pay taxes in the year of the conversion. After that, you’ll benefit from tax-free growth and withdrawals in retirement.
  • A Roth conversion can help reduce your future RMDs, as RMDs do not apply to Roth IRAs.
  • Many pre-retirees and retirees may implement a multiyear approach to Roth conversions to manage their current-year taxes while smoothing their liability over time.

An advisor can help you further evaluate if a Roth conversion makes sense for you, considering Medicare premiums, your estate planning goals, and more.

Example #3: Offset Taxes Through Tax-Loss Harvesting

Tax-loss harvesting, or realizing losses on depreciated assets in taxable investment accounts, is another strategy to help manage taxes in retirement. Here are some key details:

  • Realizing capital losses can help offset capital gains taxes when selling appreciated assets to fund living expenses, reducing your taxable investment income.
  • Realized losses can also reduce up to $3,000 of ordinary income, and any excess can be carried forward to offset future taxes, allowing retirees to benefit from the strategy for years (as of 2026).
  • Reducing overall taxable income can further help retirees manage their tax bracket and Medicare premiums.
  • Consult a financial advisor and tax professional to understand how to use tax-loss harvesting strategically in your planning and avoid the IRS wash-sale rule, which prohibits replacing the sold asset with the same or a nearly identical security within 30 days.

Example #4: Reduce Taxable Income Through Charitable Giving

Charitable giving helps manage income and provides various tax opportunities. Here are a few ways to use coordinated giving as part of your tax strategy:

Bunching Donations

If taking the standard deduction doesn’t offer additional tax benefits, bunching several years of charitable donations into one year and itemizing that year can help reduce your taxable income.

Donating Appreciated Assets

Rather than selling assets and donating the proceeds, donating appreciated assets directly to qualified charities may be more tax-efficient, effectively avoiding capital gains taxes. 

Donor-Advised Funds (DAFs)

A DAF allows you to make a sizable contribution to the account, receive an immediate tax deduction, and donate to charities over time. Front-loading donations can be particularly ideal in higher-income years or after selling a business to manage taxable income.

Managing Taxes for Heirs

An advisor can help explain how different assets are taxed after death and how charitable giving can provide a benefit to your heirs. For example, an inherited IRA is subject to ordinary taxes on withdrawals. However, charities don’t pay taxes on donated IRAs, increasing your impact.

Example #5: Use a Qualified Charitable Distribution for RMDs

If you’re already planning to give to charity, using a qualified charitable distribution (QCD) to satisfy your RMDs is another strategy to consider. Here’s what retirees should know:

  • A QCD allows retirees 70½ or older to donate up to $111,000 (for 2026) directly from an IRA to a qualified charity.
  • The donation must be made before RMDs from other withdrawals to count toward that year’s RMDs.
  • A powerful benefit is that a QCD is not included in your taxable income, like a traditional RMD, which could potentially raise your tax bracket, Medicare premiums, and Social Security taxes. You can also still take the standard deduction alongside a QCD. 
  • In contrast, if you plan to take your RMD and then make a donation, the RMD will be applied to your taxable income, and itemizing your charitable giving may not provide as much of a tax benefit as the standard deduction.

A financial advisor and CPA can help you design a charitable giving plan that helps fulfill your philanthropic goals while providing tax benefits.

Example #6: Use a Health Savings Account for Medical Expenses

From Medicare premiums to prescriptions and long-term care costs, healthcare is a significant expense for retirees. If you’ve contributed to a health savings account (HSA) within a high-deductible plan, you could help offset some of your medical expenses in retirement. Here’s how they work:

  • HSAs offer a triple tax advantage: tax-deductible contributions, tax-deferred investment growth, and tax-free withdrawals for qualified medical expenses.
  • Qualified withdrawals are tax-free and do not increase your taxable income. After age 65, you can make withdrawals for non-medical expenses, but those funds will be subject to ordinary income taxes.
  • When used strategically, an HSA can help temporarily reduce the need to withdraw from other taxable accounts.

Consult your financial advisor or tax professional to learn how you can potentially use an HSA as a dedicated, tax-efficient healthcare fund in retirement.

How Monarch Wealth Strategies Can Help You Manage Taxes in Retirement

Taxes may look different in retirement, but decisions about RMDs, charitable giving, Social Security, and more can have decades-long impacts. Fortunately, there are several strategies and levers retirees can pull in retirement to manage their tax liability, and ultimately keep more of what they’ve earned.

At Monarch Wealth Strategies, we understand how retirement, taxes, and estate planning are interconnected, which is why we look at every part of your financial picture to deliver personalized solutions. Through our collaborative and proactive approach, we help retirees gain greater confidence, knowing their plan is fully integrated and that we’re continually identifying opportunities, monitoring risks, and recommending tailored adjustments as changes occur.

If you’d like guidance on coordinating withdrawals, deductions, and income timing in retirement within a long-term plan, please contact us. We’d be happy to review your plan, identify opportunities, and recommend actions to reduce your taxes over your lifetime.

Sources:

  1. IRS. (2026, January 29). Retirement plan and IRA required minimum distributions FAQs. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs. 
  2. Social Security Administration. Premiums: Rules for Higher-Income Beneficiaries. https://www.ssa.gov/benefits/medicare/medicare-premiums.html. 
  3. Center for Retirement Research at Boston College. (2026, January 22). New Tax Break for Seniors. https://crr.bc.edu/new-tax-break-for-seniors/.