Planning for retirement is a pivotal moment, and your years of hard work are paying off with financial confidence. But as you approach this final stretch before retirement, questions about readiness can surface. Will your savings sustain your lifestyle? Have you done enough to help minimize tax burdens and maximize income?
This guide is designed to address these questions and provide actionable tax strategies tailored for couples preparing to retire within the next 5-10 years. These 7 strategies will give you practical tools to attempt to safeguard your nest egg while navigating this emotional and financial transition with confidence.
Why Tax Strategies Matter in Retirement
For couples with significant investable assets, taxes can erode your retirement income if not managed properly. By implementing a proactive tax strategy, you can attempt to retain more of your wealth, so you can focus on enjoying your golden years.
1. Optimize Contributions to Tax-Advantaged Accounts
Take full advantage of tax-deferred accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs).
- Max Out 401(k) Contributions: In 2025, individuals aged 50 or older can contribute up to $31,000 annually. As a couple, that’s $60,000 of tax-deferred savings.
- Health Savings Accounts (HSAs): If you have a high-deductible health plan, contribute the maximum ($8,550 per couple in 2025). HSAs offer a triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
These accounts reduce taxable income today while growing your investments tax-free for tomorrow.
2. Plan Roth Conversions Strategically
A Roth IRA offers tax-free withdrawals in retirement. Consider converting portions of your traditional IRA or 401(k) into a Roth IRA during low-income years (e.g., early retirement before Social Security kicks in).
- Benefits: Roth IRAs are exempt from required minimum distributions (RMDs), providing flexibility in managing your taxable income.
- Strategy: It’s a good idea to work with a financial planner to calculate how much to convert without pushing yourself into a higher tax bracket.
3. Leverage Tax-Loss Harvesting in Your Investment Portfolio
If you have taxable investment accounts, tax-loss harvesting can help offset capital gains and help reduce your tax bill.
- How It Works: Sell investments at a loss to offset gains in other areas. Any excess losses can offset up to $3,000 of ordinary income per year, with the remainder carried forward to future tax years.
- Pro Tip: Be mindful of the wash-sale rule, which prevents you from repurchasing the same security within 30 days of selling it.
This strategy ensures your portfolio remains efficient while reducing tax liability.
4. Utilize Tax-Efficient Withdrawal Strategies
When it’s time to start drawing income in retirement, the order in which you withdraw funds can significantly impact your tax burden.
- Follow This Order:
- Taxable accounts (to benefit from lower capital gains rates).
- Tax-deferred accounts like 401(k)s and IRAs (subject to ordinary income tax).
- Roth IRAs (tax-free withdrawals).
By sequencing withdrawals strategically, you can help minimize taxes and stretch your retirement savings further.
5. Consider Charitable Giving to Reduce Taxable Income
For couples who are philanthropically inclined, charitable giving can be a powerful tax-reduction tool.
- Qualified Charitable Distributions (QCDs): After age 70-½, you can donate up to $100,000 annually directly from your IRA to charity. This amount counts toward your RMD but isn’t included in your taxable income.
- Donor-Advised Funds: Set up a donor-advised fund to claim an immediate tax deduction while distributing funds to charities over time.
Not only does this reduce your taxable income, but it also allows you to leave a lasting legacy.
6. Monitor Medicare Surtaxes and Net Investment Income Tax (NIIT)
Couples with household incomes over $250,000 are subject to additional taxes, including the 3.8% NIIT on investment income and the 0.9% Medicare surtax on earned income.
- Avoid Surprises: Work with a financial planner and tax advisor to monitor your modified adjusted gross income (MAGI) and implement strategies like tax-loss harvesting or Roth conversions to stay below key thresholds.
7. Embrace Estate Tax Planning Early
If your combined net worth exceeds the federal estate tax exemption ($13.99 million each in 2025), consider strategies to reduce potential estate taxes.
- Annual Gifting: In 2025, you can gift up to $19,000 per year per recipient without triggering gift tax.
- Irrevocable Trusts: These can shield assets from estate taxes while providing financial security for heirs.
Estate planning is not just about tax savings but also about helping to ensure your wealth is distributed according to your wishes.
Emotional Considerations for Couples in Transition
Retirement planning is more than just crunching numbers. It’s a major life transition that can bring both excitement and apprehension.
- Common Concerns:
- Will our money last through retirement?
- Are we prepared for unexpected medical expenses?
- How will we maintain our lifestyle without a paycheck?
Acknowledging these emotions is crucial. Open communication with your spouse, family, and financial advisor can help alleviate anxiety and build a shared vision for the future.
How to Get Started
- Consult Professionals: Work with a certified financial planner and tax advisor who specialize in retirement planning.
- Set Realistic Goals: Define your retirement lifestyle and assess your income needs.
- Review Regularly: Tax laws and personal circumstances change. Regular reviews keep your plan optimized.
Final Thoughts: Take Charge of Your Retirement Future
By implementing these tax strategies, you can help reduce uncertainty and attempt to preserve the lifestyle you’ve worked so hard to build.
Remember, you’re not just planning for a financial future but crafting the next chapter of your life together. Embrace the journey with confidence and clarity.
For more professional advice on retirement and tax planning, schedule a consultation today by calling (763) 593-0649 or emailing info@manifestplanning.com. We are here to help!
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
The information herein is general and educational in natures and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change.