Written by Robert’s Story: A Surprise Business Partner
I want you to imagine this. There’s a man named Robert. He worked hard for 35 years, saved diligently, invested wisely, and finally reached retirement. The season of life he had dreamed about.
But the day he retired, Robert discovered something no one had warned him about. He had a new business partner: Uncle Sam.
Every time Robert withdrew from his 401(k) or IRA, Uncle Sam took a cut. If Robert pulled out a little more, his Medicare premiums jumped. When he tried to enjoy the retirement he’d earned, he found himself pushed into a higher tax bracket.
And the truth? It didn’t have to be this way. Robert had options. He just didn’t know about them.
If that hits close to home, you’re not alone. The good news is, there are strategies you can use to legally, ethically, and confidently lower your taxes in retirement. Let’s go through seven of them.
1. Use Roth Accounts Wisely
Most people only think in two buckets:
- Pre-tax accounts (401(k), IRA): You save on taxes now but pay later at ordinary income rates.
- Taxable accounts (brokerage): Money is taxed now, then usually taxed again as capital gains later.
But there’s a third bucket: Roth accounts.
Roth IRAs and Roth 401(k)s let you enjoy tax-free withdrawals in retirement. By converting portions of your pre-tax accounts to Roth through Roth conversions (sometimes called a “Roth ladder”), you can pre-pay taxes at lower rates today and eliminate Uncle Sam from future growth.
Think of it as buying out your business partner now, so your money can grow tax-free going forward.
2. Time Your Social Security
When you claim Social Security isn’t just about age—it’s also about taxes.
If you start benefits early at 62, you lock in a smaller check for life, and you stack it on top of other income like rental properties, pensions, or business income. That extra income may push you into a higher tax bracket.
By delaying benefits until age 70, your Social Security check could grow up to 130% larger. Pair that with strategic withdrawals from pre-tax accounts early on, and you can smooth out your tax bill.
The goal: balance your income streams so you enjoy more and give less to Uncle Sam.
3. Manage Your Required Minimum Distributions (RMDs)
At age 73, the IRS forces you to withdraw from tax-deferred accounts, whether you need the money or not. Skip it, and you face a 25% penalty.
There are two main ways to manage this:
- Roth conversions early: Move money from tax-deferred to Roth before RMD age. Roth accounts don’t have RMDs.
- Qualified Charitable Distributions (QCDs): If you give to charity, you can direct your RMDs straight to the nonprofit. That counts toward your RMD but doesn’t count as taxable income.
For those who planned ahead, RMDs don’t have to be a tax trap—they can be an opportunity.
4. Choose the Right Withdrawal Bucket
Retirement income can come from three buckets:
- Taxable – brokerage, real estate, business income (capital gains rates).
- Tax-deferred – 401(k), IRA (ordinary income rates).
- Tax-free – Roth accounts (no taxes).
The order in which you withdraw matters. Most people benefit from:
- Drawing down pre-tax accounts first (to avoid large RMDs later).
- Then using taxable accounts (capital gains often taxed lower than income).
- Saving Roth accounts for last (tax-free growth as long as possible).
But remember: flexibility is key. The “best” order depends on your income streams, goals, and tax bracket.
5. Move to a Tax-Friendly State
Where you live in retirement can make a huge difference.
Nine states currently have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming.
Other states reduce or eliminate taxes on Social Security benefits. Meanwhile, some states phase out exemptions as your income grows.
Relocating may not be for everyone, but if sunshine and lower taxes sound appealing, it’s worth considering.
6. Track Your MAGI to Avoid IRMAA Penalties
Medicare premiums aren’t fixed. They’re tied to your Modified Adjusted Gross Income (MAGI). Cross the wrong income threshold, even by $1, and you could pay hundreds more every year.
For example, in 2025:
- A single retiree making over $106,000 could see premiums jump from $185 to $259/month.
- Couples making over $212,000 could pay double.
Since Medicare uses a two-year lookback, planning ahead is crucial. Something as simple as timing a large expense (like a new roof) outside of those two years could save thousands.
7. Use Tax Loss Harvesting
Tax loss harvesting allows you to offset gains with investment losses.
- If you earned $100,000 in capital gains but lost $20,000, you can write off the full $20,000.
- If you only earned $15,000 in gains but lost $20,000, you can offset all $15,000 plus $3,000 of ordinary income, and carry the rest forward to future years.
It’s a powerful strategy, but timing and execution matter. Done right, it lowers your overall tax bill.
The Hidden Eighth Strategy
I’ve shared seven proven strategies, but there’s an eighth one: don’t go it alone.
Just like my daughter needed a 10-year plan to reach her career goals, your retirement deserves a plan that stretches years ahead. You can try to piece things together yourself, or you can partner with someone who knows the rules, the pitfalls, and the opportunities.
Because at the end of the day, you worked too hard for your money to watch it slip away to taxes you could have avoided.
Conclusion: Keep More of What You Earned
Robert’s story doesn’t have to be your story. With the right planning, you can reduce your taxes, stretch your retirement savings further, and live the retirement you’ve always imagined.
Uncle Sam has enough money. He doesn’t need yours too.
Bonus Tip: Use the Checklist
I created a Retirement Tax Savings Checklist that goes deeper into all these strategies. It includes:
- Strategic withdrawal orders
- Roth conversion windows
- MAGI thresholds and IRMAA traps
- Social Security tax rules
- And more
It’s not guesswork… it’s wisdom.
🧠 Download your free copy now at HappilyRetire.com
You worked too hard to give half your retirement back in taxes.
Put a plan in place. Take control. And make sure the money you earned goes where you want it to.
This is Dre Griggs with Obsidian Wisdom. Here’s to your wealthy, wise retirement.
Resources:
Social Security Intelligence: The 2025 IRMAA Brackets
Charles Schwab: Calculate your RMD
Image from Freepik.com