Managing taxes in retirement

Most retirees don’t set out to overpay taxes. It just happens – quietly, year after year – because nobody ever taught them how retirement taxes really work.

In retirement, taxes stop being something that “happens to you” and become something you can influence. Why? Because you’re no longer collecting a single paycheck with withholding handled behind the scenes. You’re now the CFO of your own income. You decide when to take Social Security, how much to withdraw from IRAs, whether to sell investments, and if Roth conversions make sense. Those choices can either keep taxes controlled – or create some painful surprises.

Here are the three big levers that can help you keep more of what you’ve earned: bracket management, timing income, and withdrawal order.

1) Bracket management: stop paying “accidental” taxes

A lot of tax damage in retirement is accidental. Not because people are careless, but because they’re not managing brackets.

The goal isn’t to pay zero tax. The goal is to avoid paying more than necessary – especially by stumbling into higher brackets or triggering what I call the “stealth taxes,” like higher Medicare premiums or extra taxation of Social Security.

One of the most important concepts here is the retirement tax valley – that window of time after you stop working but before RMDs and full Social Security income kick in. In those years, many retirees have relatively low taxable income. That can create an opportunity: you may have room in your current bracket that you’re not using.

Instead of leaving that space empty and then getting hit later by large required distributions, you can sometimes fill up a bracket intentionally – with a planned IRA withdrawal or a measured Roth conversion. Yes, you pay tax today on those distributions. But you may reduce future RMDs, smooth out future tax brackets, and create more flexibility later.

The right question isn’t “How do I pay the least tax this year?” It’s “How do I pay the least tax over the next 20 years?”

2) Timing income: the calendar is a planning tool

In retirement, when income shows up can be just as important as how much.

One common mistake is taking a large, one-time IRA withdrawal for a big expense – home repairs, a car, helping family – without realizing how much taxable income that creates in a single year. Sometimes, if the expense is flexible, splitting it across two tax years can reduce bracket creep and avoid triggering other thresholds.

This is where Roth conversions often shine – not as a one-time event, but as a multi-year plan. Instead of converting a big lump sum and taking a tax hit, many retirees are better off converting just enough each year to stay within a target bracket. Some years you may convert more, some less, depending on market performance, deductions, and other income sources.

Timing also matters for Medicare. A high-income year can lead to higher Medicare premiums later due to income-related surcharges. That doesn’t mean you never take extra income – it means you should know what thresholds you’re crossing and do it intentionally.

3) Order of withdrawals: don’t drain the wrong bucket first

Retirees usually have three “buckets” of money:

• Taxable (brokerage accounts)

  
  

• Tax-deferred (traditional IRAs and 401(k)s)

  
  

• Tax-free (Roth accounts)

  
  

Conventional thinking says taxable first, then IRA, then Roth. Sometimes that works, but following it blindly can backfire – especially if it leaves you with a giant IRA later when RMDs begin. Those required distributions can push you into higher brackets and increase other tax costs.

A more practical approach is often a blended strategy: pull from taxable for baseline spending, add enough IRA withdrawals to manage brackets, and use Roth strategically in years when you want to avoid pushing income higher.

And a quick note on Roth IRAs: it’s not just “tax-free money.” It’s flexibility. Roth funds can be invaluable for one-time expenses, high-income years, managing taxes after a spouse passes, and leaving assets to heirs in a tax-smart way. Draining Roth IRAs early can limit options later.

The bottom line

Retirement taxes aren’t a once-a-year event. They’re a strategy.

If you manage brackets, pay attention to timing, and coordinate withdrawal sources, you can stop tipping the IRS—and keep more of your money working for you.

---

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brown Family Wealth Advisors and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.