Whether you’re a business owner or a working professional, you’ve spent years sharpening your tax strategy. Managing taxes in retirement is a little different. When you understand how retirement income taxes work, you can build a tax strategy to help you keep more of what’s yours.
Understand How Retirement Income Is Taxed
Curious about taxes in retirement? Many retirees have multiple income streams, and not all income streams are taxed the same way. Generally, these sources are taxed at your individual income tax rate:
- Distributions from 401(k)s, traditional IRAs, and other tax-deferred accounts
- Pension payments
- Wages (if you work part-time or have self-employment income)
- Short-term capital gains
Some types of income, including qualified withdrawals from Roth accounts and health savings account (HSA) distributions, generally aren’t taxed.
Depending on your tax situation, up to 85% of your Social Security benefits may be taxed as earned income.
Tax-Efficient Strategies to Keep More of What You Earn
When it comes to handling taxes in retirement, no strategy is universal. Depending on whether you’ve already retired or are planning to retire soon, your approach may vary.
For Pre-Retirees
As a pre-retiree, consider these strategies:
- Max out contributions to your retirement plans: If you’re still working, consider contributing up to the maximum allowable amount in your 401k and IRAs.
- Diversify your accounts: There’s no way to predict your future tax bracket and future tax laws with complete certainty. When you have a mix of tax-free, tax-deferred, and taxable accounts, it becomes easier to optimize your strategy for taxes in retirement.
For Retirees
If you’ve already retired, these strategies may make sense for you:
- Explore qualified charitable distributions (QCDs): You can reduce the taxable amount of your required minimum distributions through gifting to a qualified charity.
- Develop an intentional distribution strategy: Focus on a distribution approach that allows you to reduce your taxes over time. Keeping your taxable income low can help you reduce Medicare premiums too.
Our Commitment to Comprehensive Financial Care
Getting familiar with strategies that can reduce your taxes is a great start. Finding a great tax preparer to help you with your taxes is another important step in the process.
We have heard from our clients over the last couple of years that they have struggled to find a good tax preparer for a reasonable price. Although we aren’t a tax-preparation firm, we are able to file tax returns for current clients that have straightforward tax situations.
Your Guide to Taxes in Retirement
Aventus Investment Advisors is here to help you navigate your finances before and during retirement. As fiduciary advisors, we act in your best interests at all times. Whether you’re already retired or you are working toward retirement in the near future, we’re ready to help you build a customized plan.
If you have questions about what we do or want to learn more about taxes in retirement, contact us online today. To schedule a meeting, call (704) 237-4207 or email jason.list@aventusadvisors.com.
About Jason
Jason List, CFP®, CFA, is a Senior Client Advisor with Aventus Investment Advisors in Cornelius, North Carolina. With nearly two decades of industry experience, he helps clients organize, grow, and preserve their wealth through comprehensive planning, investment management, and tax-focused strategies. Clients value his approachable style and the confidence that comes from having a fiduciary partner to navigate life’s milestones, whether retiring, traveling, or buying a new home.
Jason earned his undergraduate degree in mathematics from the University of North Carolina at Charlotte, a master’s in finance from Shanghai University of Finance and Economics, the CERTIFIED FINANCIAL PLANNER® designation in 2012, and the Chartered Financial Analyst® designation in 2024. He joined Aventus in 2021 after working at large financial institutions, drawn to the firm’s focus on personalized, transparent advice.
A Charlotte-area resident for more than 30 years, Jason lives with his wife, Ashley, and their beagle, Mindy. He enjoys traveling, hiking, bowling, and watching sports, and also serves as treasurer for a nonprofit that supports disenfranchised children in Kenya. To learn more about Jason, connect with him on LinkedIn.