3 Retirement Tax Moves That May Result in Paying Less
Retirees often have more control over taxes than they realize. Once paychecks stop, income typically comes from multiple sources—Social Security, pensions, and withdrawals from different account types.
In Episode 32, I share three “money moves” that may help retirees pay less in taxes by managing where income shows up, using Roth dollars intentionally, and aligning charitable giving with a tax plan.
The core idea: Retirement taxes are about planning the calendar year
I always frame this conversation around the reality that taxes are calculated over a calendar year (January 1–December 31). While working (especially as a W-2 employee), income is relatively fixed. However, in retirement, you may be able to choose how much taxable income to recognize by selecting which accounts fund spending each year. That flexibility is the foundation of the three moves below.
Money Move #1: Control where your income shows up on your taxes
What “control” means When I speak about “control,” I mean knowing how much income you want to report in a given year and managing withdrawals to stay within a preferred marginal tax bracket. This ties back to the three account “buckets” we discuss often:
- Pre-tax (Traditional IRA/401(k)) — withdrawals generally count as taxable income
- After-tax (taxable savings/brokerage) — tax treatment depends on gains/dividends/interest
- Roth — qualified withdrawals are generally tax-free
Why it matters Random withdrawals can create avoidable tax outcomes, such as:
- Crossing into a higher bracket unexpectedly
- Creating “lumpy” income years that inflate tax liability
- Losing the ability to plan other moves (like Roth conversions) efficiently
Practical takeaway A retiree-friendly way to apply this is to decide upfront:
- “How much taxable income do we want to show this year?”
- “Which bucket should fund our spending to stay within that plan?”
Money Move #2: Use Roth money strategically (not randomly)
The common mistake I see Many retirees withdraw from Roth accounts simply because they are “tax-free,” without checking whether that move improves the overall tax outcome. I call this random Roth usage.
The strategic use case: avoiding bracket creep Here is a practical example: if you are already near the top of a bracket (for example, the 12% bracket) and you want to make a big-ticket purchase—like a $50,000 car—taking that amount from a pre-tax IRA could push you into the next bracket. In that scenario, using Roth funds for the one-time expense can help keep taxable income lower for the year.
Practical takeaway Roth dollars are often most valuable when used intentionally to:
- Prevent pushing into higher marginal brackets
- Cover one-time large expenses without increasing taxable income
- Coordinate with other income sources like Social Security and pensions
Snowbirds and state taxes: where do you pay?
Kamie asked a common question during the episode: if you live part of the year in one state and part in another (a “snowbird”), where do you pay taxes?
My answer centers on residency. You generally establish residency in one state, and how the second home is treated depends on state rules and your facts/circumstances. We also discussed how multi-state taxation works for professional athletes as an illustration of how states can tax income tied to time spent in the state.
Practical takeaway Some retirees consider changing residency to reduce state income taxes, but we highlighted that lifestyle and family considerations are also part of the equation. If you are splitting time, residency rules are worth reviewing with a CPA before assuming the tax outcome.
Money Move #3: Charitable giving strategies that can reduce taxes
There are two charitable planning tools I want to highlight that retirees may use:
- Donor-Advised Funds (DAFs)
- Qualified Charitable Distributions (QCDs)
Strategy A: Donor-Advised Funds (DAFs) Think of DAFs as a way to donate an appreciated asset (like stock) and then recommend grants to charities over time. Here is an example:
- Invest $50,000 in a stock
- It grows to $300,000
- Donate the stock to a donor-advised fund
- The stock is sold and invested inside the DAF
- You can give to multiple charities over years using a simple portal (assuming qualified 501(c)(3) organizations)
Depending on your income and tax situation, DAF planning can create opportunities to pair deductions with other planning moves—such as Roth conversions—to help manage brackets.
Strategy B: Qualified Charitable Distributions (QCDs) We also discussed QCDs in relation to RMDs at age 73. Conceptually, instead of taking an RMD as personal income, eligible distributions can be directed to charity (subject to rules). The key benefit is that the amount directed this way may not be claimed as taxable income.
The paperwork caveat we stress Even if a QCD is executed, you may still receive a 1099 showing a distribution. I emphasize this strongly:
- Keep donation receipts and documentation
- Ensure your accountant knows it was a QCD and reports it correctly
Key takeaways
- Retirement taxes can improve when withdrawals are planned rather than random.
- Using the right account type (pre-tax, after-tax, Roth) can help control taxable income and brackets.
- Roth dollars are most effective when used strategically for bracket management and one-time expenses.
- Charitable tools like DAFs and QCDs can align giving with tax efficiency for retirees who already plan to give.
- Snowbirds should treat residency and state tax rules as a planning item—not an assumption.
