Discover How Strategic Tax Planning Can Help You Minimize Taxes on Social Security, Pensions, and Withdrawals from Retirement Accounts
Learn how a proactive approach to tax planning can help you protect more of your retirement income and avoid common tax pitfalls.
If you’re approaching or already in retirement, you’ve probably spent decades saving and investing. But here’s something that often catches retirees off guard: how much they’ll owe in taxes. Without careful planning, withdrawals from retirement accounts, Social Security benefits, and pension income can combine to create an unexpected tax bill—and even impact your healthcare premiums.
At Seaside, we help clients prepare for these scenarios before they become costly. Here are some ways strategic tax planning can help keep more of your hard-earned money in your pocket.
1. Managing the Taxation of Social Security
Many retirees assume Social Security benefits are tax-free—but that’s not always the case. Depending on your "provisional income" (which includes half of your Social Security benefits, plus other income like pensions and retirement account withdrawals), up to 85% of your benefits may be taxable.
What You Can Do: By carefully managing other sources of income—such as spreading out IRA withdrawals or utilizing Roth accounts—you can potentially reduce the amount of your Social Security subject to tax.
2. Timing Pension and IRA Withdrawals Wisely
Pension income and withdrawals from traditional IRAs or 401(k)s are taxed as ordinary income. Taking too much out in one year can push you into a higher tax bracket or increase the portion of your Social Security that’s taxed.
What You Can Do: Look at your income picture over several years. It might make sense to withdraw a bit more in lower-income years or consider partial Roth conversions before required minimum distributions (RMDs) begin at age 73. This can help smooth out your tax liability over time.
3. Using Roth Conversions Strategically
Roth conversions can be a smart way to lower future tax bills. While you’ll pay taxes on the amount converted now, the funds grow tax-free and aren’t subject to RMDs later. Plus, qualified withdrawals from Roth IRAs in retirement are tax-free.
What You Can Do: Take advantage of lower income years or tax-efficient windows (like early retirement before Social Security or RMDs kick in) to convert traditional retirement funds to Roth IRAs.
4. Being Aware of Medicare IRMAA Tiers
Income not only impacts taxes—it also affects your Medicare premiums. If your modified adjusted gross income exceeds certain thresholds, you could be subject to Income-Related Monthly Adjustment Amounts (IRMAA), raising your Part B and D premiums.
What You Can Do: Coordinate large distributions, capital gains, or conversions to stay below IRMAA thresholds when possible. Sometimes, even a small shift in income timing can avoid hundreds (or thousands) in extra premiums.
5. Coordinating with a Tax-Savvy Advisor
Strategic tax planning isn’t something you do once—it’s an ongoing process. Tax laws change, income varies, and your needs evolve over time. A proactive, coordinated approach can help you adjust and make informed decisions.
What You Can Do: Make sure to schedule your annual tax planning meeting with your team at Seaside so we can help you proactively plan and lower your lifetime tax bill. Whether it’s managing RMDs, planning charitable giving, or reviewing your withdrawal strategy, small adjustments can make a big impact.
Wrapping It All Up
Retirement is a time to enjoy the fruits of your labor—not to stress over taxes. With a clear tax plan, you can feel more confident that your income will support the lifestyle you envision. Tax planning in retirement isn’t about avoiding taxes—it’s about managing them wisely to support your long-term goals.
This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.