Tax Planning for Retirement
Covers tax-efficient withdrawals, Roth conversions, RMD rules, and Social Security taxation strategies for retirement planning in 2026.
TL;DR
- 01Sequence withdrawals from taxable, tax-deferred, and Roth accounts strategically.
- 02Convert traditional IRA funds to Roth before required minimum distributions begin.
- 03Plan Social Security income timing to minimize its taxable portion each year.
Tips
- 01Run a Roth conversion analysis every October or November, while there's time to convert and estimate your tax bill before year-end.
- 02Use qualified charitable distributions after age 70½ to satisfy your RMD while keeping the withdrawal out of taxable income.
- 03Withdraw from taxable accounts first in retirement to use lower capital gains rates before tapping tax-deferred accounts.
Warnings
- 01Roth IRA contribution eligibility phases out for single filers above $153,000 MAGI and joint filers above $242,000 in 2026.
- 02Missing a required minimum distribution triggers a steep 25% excise tax on the amount you should have withdrawn.
- 03Large Roth conversions can push income above Medicare IRMAA thresholds, raising your Part B and Part D premiums two years later.
Retirement Tax Planning Overview
Effective tax planning in retirement can significantly increase how much income you keep. The goal is to manage which accounts you draw from and when — minimizing your tax bracket across each year of retirement.
- Traditional IRA and 401(k) withdrawals are taxed as ordinary income at rates from 10% to 37%.
- Roth IRA withdrawals are tax-free in retirement, provided the account is at least 5 years old and you are age 59½ or older.
- Taxable brokerage accounts may generate long-term capital gains taxed at 0%, 15%, or 20% depending on income.
- Up to 85% of Social Security benefits may be taxable depending on your combined income level.
- Consulting a financial advisor or CPA is recommended to build a personalized withdrawal plan.
Contribution Limits and Account Types
Understanding your account options and limits helps you build a tax-diversified retirement portfolio.
| Account Type | 2026 Contribution Limit | Tax Treatment |
|---|---|---|
| 401(k) (traditional) | $24,500 ($32,500 age 50+) | Pre-tax contributions; taxable withdrawals |
| IRA (traditional) | $7,500 ($8,500 age 50+) | Pre-tax or after-tax; taxable withdrawals |
| Roth IRA | $7,500 ($8,500 age 50+) | After-tax contributions; tax-free withdrawals |
| SEP-IRA | Up to 25% of compensation or $72,000 | Pre-tax contributions; taxable withdrawals |
- Roth IRA income limits: contribution eligibility phases out for single filers with MAGI above $153,000 and MFJ filers above $242,000 in 2026.
- Backdoor Roth IRA: high earners can contribute to a non-deductible traditional IRA then convert to a Roth, potentially avoiding income limits.
Roth Conversions and Withdrawal Strategy
Roth conversions move money from a traditional IRA or 401(k) into a Roth IRA. You pay income tax on the converted amount now, but future growth and withdrawals become tax-free.
- Best timing for conversions: the years between retirement and age 73 (before RMDs begin) often offer a window of lower taxable income.
- Convert amounts that fill your current bracket without pushing income into the next bracket.
- A tax-efficient withdrawal sequence generally looks like this:
- Withdraw from taxable accounts first to use low capital gains rates.
- Draw from traditional IRA or 401(k) next to manage ordinary income.
- Use Roth accounts last to preserve tax-free growth as long as possible.
- Social Security taxation thresholds: up to 50% of benefits may be taxable if combined income exceeds $25,000 (single) or $32,000 (MFJ). Up to 85% is taxable above $34,000 (single) or $44,000 (MFJ).
Required Minimum Distributions
The IRS requires withdrawals from most tax-deferred retirement accounts starting at a specific age. Failing to take an RMD results in a 25% excise tax on the amount not withdrawn.
- RMD start age: age 73 for individuals born between 1951 and 1959; age 75 for those born in 1960 or later.
- RMDs apply to traditional IRAs, SEP-IRAs, SIMPLE IRAs, and most employer plans including 401(k)s.
- Roth IRAs do not have RMDs during the owner's lifetime.
- Qualified charitable distributions (QCDs): individuals age 70½ or older can transfer up to $105,000 per year directly from an IRA to a qualified charity. QCDs count toward your RMD and are excluded from taxable income.
- Calculate your annual RMD using the IRS Uniform Lifetime Table and your December 31 account balance from the prior year.
Tools and Resources
- IRS Publication 590-B covers distributions from IRAs, including RMD rules and Roth withdrawal requirements.
- IRS RMD Worksheets are available at IRS.gov to calculate your required withdrawal each year.
- Tax software such as TurboTax or H&R Block guides you through Social Security taxation and retirement income reporting.
- IRS Form 8606 is used to track non-deductible IRA contributions and Roth conversions.
- Consider working with a fee-only financial planner or CPA to model multi-year Roth conversion strategies and RMD projections.
FAQ
Withdraw from taxable brokerage accounts first to take advantage of lower long-term capital gains rates. Draw from traditional IRA or 401(k) accounts next to manage ordinary income, and tap Roth accounts last so they keep growing tax-free as long as possible. This sequence generally minimizes your tax bracket across retirement.
The years between retirement and age 73, before required minimum distributions begin, often offer a window of lower taxable income that's ideal for conversions. Convert only enough to fill your current tax bracket without pushing income into the next one. Run a fresh analysis each October or November while there's still time to act before year-end.
RMDs start at age 73 for people born between 1951 and 1959, and at age 75 for those born in 1960 or later. They apply to traditional IRAs, SEP-IRAs, SIMPLE IRAs, and most employer plans, but Roth IRAs are exempt during the owner's lifetime. Missing an RMD triggers a 25% excise tax on the shortfall.
Up to 50% of benefits become taxable once combined income exceeds $25,000 (single) or $32,000 (married filing jointly). Above $34,000 (single) or $44,000 (married filing jointly), up to 85% becomes taxable. Managing withdrawals from other accounts can help keep your combined income below these thresholds.