Tax planning
How do you keep the IRS from taking more than its share?
Retirement tax planning means deciding which accounts you draw from, in what order, and in which years. For most families who saved into a 401(k) for decades, the biggest lever is a Roth conversion. The low-tax years between the day you retire and the year you turn 73, or 75 if you were born in 1960 or later, are your window, before required minimum distributions take the choice away.
Sound familiar?
- Most of your savings sits in a 401(k) or traditional IRA, and you have started to realize none of it has been taxed yet.
- You have read about Roth conversions and think they probably make sense, but nobody has told you how much to convert or when to stop.
- You are turning 70-something and someone mentioned required minimum distributions could push you into a higher bracket than you were in while working.
- Your accountant files the return in April and tells you what happened. Nobody is telling you what to do before December.
See what the window is worth
How I work through it
- 01
Look past April, out to your nineties
I project your taxable income year by year from now through your nineties. That shows where the low-bracket years sit, usually between the day your paycheck stops and the year Social Security and RMDs both switch on.
- 02
Size the conversions to a bracket ceiling
Once we can see the runway, we fill the low brackets on purpose. Convert too little and you leave the window unused. Convert too much and you pay for the privilege at 32 percent. The right number is usually the top of a bracket we pick together.
- 03
Watch the two tripwires behind every conversion
Conversions push up the income figure Medicare uses to set your Part B and D premiums two years later, and can change how much of your Social Security gets taxed. I plan around IRMAA thresholds rather than discovering them in the mail.
- 04
Coordinate with the person who files your return
I work directly with your CPA so the plan and the tax return agree with each other. If you do not have one, I will tell you when your situation is complicated enough to need one.
What you get
If you are working with an advisor now and none of this sounds familiar, that is worth a conversation.
- A multi-year tax projection showing your income, brackets, and conversion capacity from now through your eighties
- A specific conversion amount for this calendar year, with the bracket ceiling we are filling to
- A withdrawal order across your taxable, tax-deferred, and Roth accounts
- IRMAA threshold tracking so a conversion does not surprise you with higher Medicare premiums two years out
- A December check to true up the numbers before the year closes
- Direct coordination with your accountant, in writing, so nothing gets lost between us
What this means for you
You stop guessing in December
Every fall you get a number and a reason for it rather than a vague sense that you should probably do something about taxes.
RMDs arrive smaller
Money moved to Roth in your sixties is money the IRS cannot force you to withdraw at 73 or 75, which usually means a lower bill in your seventies and eighties.
Your spouse inherits a plan instead of a puzzle
The survivor files as single, often in a higher bracket on the same income. Conversions you make while you are both alive soften that.
A hypothetical example
What this looks like in practice
A couple retires at 63 with $2.4M, most of it in his 401(k). They delay Social Security to 70. That leaves seven years where their taxable income is low by choice. Instead of coasting through those years, they convert up to the top of the 22 percent bracket every year. By the time required withdrawals begin their pre-tax balance has stopped compounding into a bigger RMD problem, a meaningful share of their money grows tax-free, and their required withdrawals start from a smaller base.
This is a hypothetical example for illustration only. It does not represent an actual client and is not a guarantee of future results. Your situation, tax brackets, and outcomes will differ.
Questions I get about this
You should consider one if you expect to be in the same or a higher tax bracket later than you are now. That describes most people in the years between retiring and turning 73 or 75, when the paycheck has stopped but Social Security and required minimum distributions have not started. For most people the live questions are how much, and in which years.
Age 73 for most people retiring today, moving to 75 for those born in 1960 or later. The amount is set by an IRS table applied to your December 31 balance, so the larger that balance grows, the larger the forced withdrawal.
No. I do the planning and your CPA does the preparation. I work alongside them and tell you what to do before the year ends, while a decision can still change the outcome. Once someone sits down to file, there is nothing left to decide.
No, though the options narrow. Required distributions have to come out first and cannot be converted, but conversions above that amount are still on the table, and qualified charitable distributions become useful if you give.
These decisions do not sit still
Change one and the others move. That is the argument for handling them together rather than one specialist at a time.
Let's find out if I can help.
The first conversation is 30 minutes on the phone, and you bring nothing to it. You describe what you are trying to sort out, and I tell you straight whether this is the kind of work I do well.