Taxes How To Pay Less Taxes in Retirement By Dana Anspach Dana Anspach Twitter Dana Anspach is a Certified Financial Planner and an expert on investing and retirement planning. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. learn about our editorial policies Updated on November 15, 2022 Reviewed by Eric Estevez Reviewed by Eric Estevez Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. learn about our financial review board Fact checked by David Rubin Fact checked by David Rubin Facebook Instagram Twitter David J. Rubin is a fact checker for The Balance with more than 30 years in editing and publishing. The majority of his experience lies within the legal and financial spaces. At legal publisher Matthew Bender & Co./LexisNexis, he was a manager of R&D, programmer analyst, and senior copy editor. learn about our editorial policies In This Article View All In This Article Who Benefits Most From Tax Planning? How Retirement Taxes Are Calculated Tax Planning Saves Money Help with Retirement Tax Planning Frequently Asked Questions (FAQs) Photo: Fuse / Getty Images You can minimize your taxes during your retirement years with a few retirement tax strategies, but there are also ways you can lay the groundwork in the years before your retirement so that you can pay less in taxes at that time. It all begins with understanding how your various sources of retirement income will be taxed, including your Social Security benefits. Key Takeaways Your income in retirement, and where it comes from, will affect how you will be taxed.For long-term planning, look at how much you should withdraw from your different types of retirement accounts each year and how to coordinate those amounts with your Social Security income to reduce taxes.You should also examine your annual tax bracket, as that will influence which type of account it will benefit you to withdraw from and whether you should take advantage of realized capital losses.By combining short-term and long-term tax planning, you can reduce your overall tax burden and keep more of your funds for retirement. Who Benefits Most From Tax Planning? The opportunity to pay less in taxes is greatest for: Those who have savings in both tax-deferred retirement accounts, such as 401(k) plans or individual retirement accounts (IRAs), and after-tax savings, such as a brokerage account. Those who have years where their income might be less, such as when one spouse retires mid-year, when spouses retire during different years, when either spouse goes through a period of unemployment, or when income fluctuates due to a commission-based job. Those who have years where their itemized deductions can change, such as by taking on a new mortgage, paying off a mortgage, experiencing a year with increased medical expenses or charitable deductions, or acquiring a new dependent. Note The total of your itemized deductions might not work out to more than the standard deduction you're entitled to for your filing status. It would be counterproductive to itemize in this case because you'd be paying tax on more income than you have to. How Retirement Taxes Are Calculated During your retirement planning, it's important to consider the way in which your Social Security benefits will be taxed. Careful tax planning prior to retirement can give you, as a retiree, an opportunity to reduce the amount of your Social Security benefits that will be taxed. Taxation of benefits is governed by federal guidelines. Up to 50% of your benefits might be taxable as of tax year 2021 (the return filed in 2022) if you have income—including half your benefits—between $25,000 and $34,000 if you're single, head of household, or a qualifying widow(er). This rule also applies to some married taxpayers who file separate returns if they did not live with their spouse at any time during the tax year. It can increase to 85% of your benefits if your income, including half of your benefits, is more than $34,000. Married taxpayers who file joint returns are taxed on 50% of their benefits on total income between $32,000 and $44,000 and on 85% if their income is more than $44,000. Note The $34,000 limit increases to $44,000 if you're married and if you and your spouse file a joint return. By adjusting when you take your income and how much you take, you can gain greater control over your taxes. Jim Blankenship, CFP, shows an example of how this works in his book, "A Social Security Owner's Manual." He shows how one retiree pays thousands less in taxes by rearranging when and how they take their different sources of retirement income. It can be helpful to read up on case studies to see how you compare so you can take the necessary actions before retirement. Tax Planning Saves Money Two types of tax planning can help you reduce retirement taxes and increase your after-tax retirement income: Long-range tax planning provides general guidance as to how much you should withdraw from which accounts from year to year and how to coordinate your sources of income with your Social Security benefits to deliver more after-tax income.Annual tax planning addresses how tax rates and deductions can change each year. Annual tax planning that's done in the fall can uncover tax planning opportunities that wouldn't be discovered with long-range tax planning alone. Long-Range Tax Bracket Planning Long-range tax planning looks at your projected tax rates and sources of income. It shows how you might rearrange your sources of income to deliver more after-tax income. This type of planning requires software or a spreadsheet that contains detailed tax calculations to show you the amount of after-tax income you can have by taking one course of action versus another. Long-range tax planning helps reduce your retirement taxes in two ways: You can design a general strategy about when to withdraw money from which types of accounts to keep you in the lowest tax bracket possible.It can show you how to allocate investments across your tax-deferred vs. after-tax accounts to reduce your tax burden over your retirement years. Note The concept of rearranging investments to reduce taxable income provides money-saving benefits. Annual Tax Bracket Planning Annual tax planning can help you uncover opportunities to: Withdraw money from an IRA or convert Traditional IRA funds to a Roth IRA, and pay little to no tax in years when your deductions are high, and your other sources of income are low. Realize capital losses to offset capital gains or create a capital loss carryover. Use years with high itemized deductions to your advantage. Fund the type of account—Roth IRA, Traditional IRA, or 401(k)—that will provide the most long-term tax benefit to you based on your tax situation in that year. Get Help With Retirement Tax Planning It's difficult to do smart tax planning without professional assistance. Remember when you seek help that many people who call themselves financial advisors work for big investment firms or banks that prohibit them from offering tax advice. Find either a certified public accountant (CPA) or tax professional who has their PFS designation and does the type of long-range tax planning you're looking for or a retirement planner who practices independently. They should have a background in taxation and a process in place to identify tax-planning opportunities. "PFS" designates a credentialed personal financial planner or personal financial specialist. Frequently Asked Questions (FAQs) What's the best way to save on taxes in retirement? Understanding your sources of retirement income and how they'll be taxed can save you money. You can't predict your retirement tax rate since your income and tax laws can change, but estimating your income can help.For example, in 2022, tax rates range from 10% for incomes below $10,275 ($11,000 in 2023) to 37% if above $539,900 ($578,125 in 2023). These income limits are subject to yearly inflation adjustments.Once you have a sense of your income and sources, review which is taxable and nontaxable, as well as your deductions. You can then project the most tax-efficient place for your money, when to take distributions, and how much to withdraw. Consult a tax professional to help you. How should you estimate your future tax bracket in retirement? That depends on how you expect your income to change. If you're early in your career and not earning much, you may be in a higher tax bracket at retirement. On the other hand, if you're already in a high bracket, stopping work at retirement may lower your income and drop you to a lower tax bracket. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Topic No. 501 Should I Itemize?" IRS. "IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable." American Institute of Certified Public Accountants. "CPA/PFS Eligibility Requirements." IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2023." IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."