1. Understand How Retirement Income Is Taxed

Not all retirement income is taxed equally. Here's how the IRS typically views common sources:

Social Security: Up to 85% may be taxable based on your “combined income” (adjusted gross income + nontaxable interest + half your Social Security)

Traditional IRA/401(k) withdrawals: Fully taxable as regular income

Roth IRA withdrawals: Tax-free (if account is at least 5 years old and you're over 59½)

Pensions and annuities: Typically taxed like ordinary income

Investment income: Depends on whether it’s dividends, capital gains, or interest

Knowing which “bucket” your income falls into is the first step toward minimizing what the IRS takes.

2. Strategically Withdraw from Retirement Accounts

Timing is everything. Withdraw too early or too much, and you’ll face hefty taxes. But withdraw strategically, and you can reduce your tax rate.

Here’s a common strategy:

Use Roth IRAs last — let them grow tax-free

Withdraw from taxable brokerage accounts first (long-term gains often taxed at lower rates)

Draw from traditional IRAs/401(k)s before RMDs (required minimum distributions) kick in at age 73

This “tax waterfall” method helps smooth out your tax bracket year by year.

3. Convert to a Roth IRA—Before It’s Too Late

Roth conversions allow you to move funds from a traditional IRA or 401(k) into a Roth account—paying taxes now to avoid them later.

Why it works:

Reduces the size of your future RMDs

Creates tax-free income in later years

Helps avoid Medicare IRMAA surcharges (more on that below)

Tip: Do conversions in low-income years or early retirement (before age 73). Spreading them out over several years can keep you in a lower bracket.

4. Relocate to a Tax-Friendly State

Some states don’t tax retirement income at all—others tax pensions, 401(k)s, or even Social Security. Moving could save thousands annually.

Top states with low or no income tax on retirees (as of 2025):

Florida

Tennessee

South Dakota

Wyoming

Texas

Nevada

Also consider property taxes, sales tax, and estate taxes. What you save in income taxes might be lost elsewhere if you’re not careful.

5. Watch Out for Medicare Premium Surcharges

High income can trigger higher Medicare Part B and Part D premiums—called IRMAA (Income-Related Monthly Adjustment Amounts).

For 2025, IRMAA kicks in if modified adjusted gross income exceeds:

$103,000 (single)

$206,000 (married filing jointly)

Tax moves like large IRA withdrawals or Roth conversions can push you into IRMAA zones. Always plan big income years with Medicare in mind.

6. Take Advantage of the Standard Deduction and QCDs

Don’t overlook the basic stuff. As a retiree:

Your standard deduction increases after age 65 ($15,700 for singles, $30,700 for married in 2025)

You can use Qualified Charitable Distributions (QCDs): donate directly from your IRA to charity tax-free (up to $105,000/year for 2025)

QCDs count toward your RMD and don’t increase your AGI—making them a powerful stealth strategy.

7. Avoid Penalties with Estimated Tax Planning

If you’re withdrawing from retirement accounts or earning investment income, you may need to pay estimated quarterly taxes to avoid underpayment penalties.

Simple rule: If you expect to owe more than $1,000 in taxes and you don't have withholding, make estimated payments in April, June, September, and January.

Your tax advisor can help you set up a withdrawal strategy that automatically withholds taxes, so you’re never caught off guard.