9 Clever Tax Planning Moves Retirees Need to Know About

For better or worse, taxes don’t end just because you’ve left the workforce. You may still be trying to build up your savings , but you should still have income from Social Security, a side job, investments, or all of the above.

However, dealing with taxes can be trickier on a fixed income than when earning a steady wage. As the 2024 tax year draws to a close, consider taking the nine financial steps below to protect your assets and start the new year on the right fiscal foot.

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1. Strategize your savings withdrawals to make tax payments

If you have a traditional IRA or 401(k), the money you withdraw to live off of in retirement will be subject to income taxes, typically based on your annual tax bracket. You’ll pay the tax on the money you withdraw during the same tax year in which you withdraw it.

However, budgeting for these taxes can be confusing, especially when you’re trying to assess how much you need to withdraw per year to maintain your pre-retirement quality of life.

Talk to a financial advisor about how much money you need to set aside for taxes once you make a withdrawal to avoid wasting money .

Do you owe the IRS over $10K? Ask this company to help you eliminate your late tax debt.

2. Learn about the capital gains tax

Capital gains refer to the profits you make on your investments, and they’re taxed based on how long you hold the asset before selling it for a profit.

There are no age-based exemptions to the capital gains tax, calculated separately from the income tax you pay on the money you withdraw from your traditional retirement account.

Understanding how much you owe the federal government in terms of income and capital gains taxes is confusing, so talk to a financial advisor or tax professional for specific guidance on budgeting for both types of taxes.

3. Consider tax-loss or tax-gain harvesting

You can employ a few strategies to reduce your capital gains taxes, starting with tax-loss harvesting.

With this strategy, you offset your total capital gains by selling some of your investments at a loss, lowering the total taxes you need to pay on your capital gains.

Conversely, tax-gain harvesting means recognizing the gains on certain sales up to the amount you lost, which can mean you’re taxed less on the sale.

Tax-loss and tax-gain harvesting comes with strict IRS regulations, so you’ll want to discuss these strategies with your tax professional.

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4. Consider charitable donations

Once you reach a certain age (typically 72 or 73), you’re required to withdraw a minimum amount of money from your IRA account.

These required minimum distributions (RMDs) impact how much you’ll owe in taxes, but you can potentially reduce the taxes you owe by making a qualified charitable distribution (QCD).

A QCD transfers your funds directly from your investment portfolio to a charity. The amount you donate counts toward your RMD but isn’t taxable, meaning the donation can lower your overall taxable income and minimize your tax liability.

5. Think about itemizing medical expenses

The older you get, the more money you’re likely to spend on medical expenses every year. Fortunately, retirees can deduct certain medical expenses, including Medicare premiums and high out-of-pocket costs.

Itemizing these expenses on your taxes can lower your overall taxable income , reducing your tax liability.

Before the end of the tax year, talk to a fiscal advisor to find out if you should make any major medical purchases.

6. Learn about potential Roth conversions

Unlike a traditional IRA or 401(k) , money from a Roth IRA account isn’t subject to taxes upon withdrawal. In some cases, you might be able to move money from your traditional IRA into a Roth IRA to save on taxes.

Remember that you’ll still be taxed when transferring your money, but the overall amount could be less than you’d be taxed when making a traditional withdrawal.

However, the potential tax benefit depends on your financial situation, so you must work closely with your financial advisor to determine whether a Roth conversion is the right call.

7. Offset your required minimum distributions with retirement account contributions

Depending on your age, you might need to take your yearly required minimum distribution before the end of this year.

However, if you're eligible for one, you can offset the income (and its corresponding income tax) by contributing funds to a separate retirement account, such as a solo 401(k).

8. Start planning for next year’s taxes

Scrambling to pay an unexpectedly high tax bill is the last thing you want to worry about while enjoying your retirement.

Get ahead of next year’s stress by planning your annual withdrawals, including which accounts you’ll withdraw from, when you’ll make the withdrawals, and how much money you should set aside to cover income and capital gains taxes.

9. Brainstorm ways to diversify your income sources next year

If all or most of your money is coming from investments, it could be the perfect time to start thinking about ways to diversify your income.

While this won’t remove confusing, expensive income and capital gains taxes from your life, it might lower your financial stress .

Money from a part-time job or side gig could give you more leeway in your budget to save for taxes without stressing about its affordability.

Bottom line

Before making any of the money moves listed above, schedule a meeting with a retirement planner, CPA, or financial advisor.

They can help you assess which of these tax strategies will benefit your bottom line and improve your financial fitness for the next tax year.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).