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Smart Retirement Tax Planning: Strategies for Every Stage

April 17, 2025

Retirement is often thought of as the time to relax and enjoy the rewards of years of hard work. But for many, retirement comes with an unpleasant surprise: higher-than-expected taxes. That’s because retirement income—unlike a regular paycheck—comes from various sources that are taxed differently, and some of those taxes are hidden or indirect. If you want to keep more of your hard-earned money and create a financially secure future, it’s critical to understand how tax planning evolves through the four stages of retirement.

The Four Retirement Surprises

Before diving into strategy, let’s highlight a few common surprises that catch retirees off guard:

  1. Inflation: People tend to budget in today’s dollars without accounting for how rising prices will impact their future spending.
  2. Longevity: Many underestimate how long they’ll live—and therefore, how long their savings need to last.
  3. Lifestyle Expenses: Retirees often spend more than expected to maintain their pre-retirement standard of living.
  4. Health Care Costs: Medical expenses can consume a significant portion of retirement savings, and they often increase with age.

Keys to Successful Tax Planning Strategies for Retirement

Key #1: Know Your After-Tax Retirement Picture

Your retirement savings aren’t all yours—the IRS still gets a share. For example, a $500,000 balance in your 401(k) or traditional IRA may be worth much less after taxes.

What to do:

  • Assess your after-tax net worth, not just your account balances.
  • If you’re already retired, start evaluating next year’s tax situation before tapping your assets in the new year.

Key #2: Watch Out for Social Security and Medicare Tax Traps

Your retirement income can affect how much of your Social Security benefits are taxed and how much you pay for Medicare.

What to do:

  • Understand how IRA withdrawals can cause more of your Social Security to become taxable.
  • Plan withdrawals carefully to avoid higher Medicare premiums due to income-based surcharges.

Key #3: Strategically Use Your Taxable, Tax-Deferred, and Tax-Free Accounts

One of the most powerful tools in retirement is controlling when and how you draw from your various accounts to manage your tax brackets.

What to do:

  • Consider drawing from IRAs earlier (even before RMDs kick in) to reduce future tax impacts.
  • Use strategies like Roth conversions or harvesting capital gains during low-income years to “fill up” lower tax brackets.
  • Explore Qualified Charitable Distributions (QCDs) from your IRA if you’re over 70½, to avoid paying tax on RMDs.

Key #4: Don’t Forget Estate and Long-Term Care Planning

Good tax planning also considers the people you leave behind.

What to do:

  • Think about step-up in basis strategies if you have appreciated assets and a terminal illness.
  • Choose the best method for passing on IRAs to heirs, based on current tax laws.
  • Make a plan for long-term care so it doesn’t deplete the inheritance you want to leave behind.

The Bottom Line: Tax Planning in Retirement is a Moving Target

Your tax exposure isn’t fixed—it changes throughout retirement. That’s why you need a tax strategy that:

  1. Anticipates how and when you’ll tap assets to cover expenses
  2. Understands the full range of taxes you may face
  3. Helps you pay the lowest tax rate possible, legally

Next Steps

We want you to feel confident and in control of your retirement. A well-thought-out tax plan can bring peace of mind to you and your family. Whether you need financial planning, investment guidance, or a referral to a tax professional, we’re here to help. Let’s create a tax-smart retirement strategy together. Reach out to our Investments & Insurance Team today to get started.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CUSO Financial”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CUSO Financial: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Columbia Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is a modern wealth management solutions company and is not a Registered Investment Advisor or broker-dealer. Investment products, services and advice are only provided through CUSO Financial, a subsidiary of Atria.

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