Retirement Tax Planning: A Year-Round Guide to Help Keep More of What You’ve Built

The end of a paycheck doesn’t mean the end of taxes. When you stop working, your earned income may disappear, but the assets you have spent decades accumulating still generate tax obligations — sometimes in ways that surprise even experienced investors.

During your working years, your tax picture was relatively straightforward. You earned income, your employer withheld taxes, and you filed annually. In retirement, the mechanics change. Your income may come from multiple sources, and each has its own tax treatment. Your income sources may include Social Security, pension payments, IRA withdrawals, investment income, and rental or business income. The interaction between these sources can push you into higher brackets than you expected, trigger Medicare surcharges, or make more of your Social Security benefits taxable.

The key insight is that retirement tax planning is about making strategic decisions throughout the year that shape what you may owe. Acting before Dec. 31, not by April 15 of the following year, can make a meaningful difference. By the time you file, nearly every decision that determines your tax liability has already been made.

Two tax rate concepts matter more in retirement than they did during your working years: your effective rate and your marginal rate. Understanding the difference between these tax rates can be an important consideration in retirement tax planning.

Why your marginal rate matters more

In retirement, your marginal rate drives many of your most important decisions. When you’re deciding whether to take an extra withdrawal, do a Roth conversion, or realize a capital gain, the cost of that decision is measured at your marginal rate, not your effective rate. A retiree with an effective rate of 12% might face a marginal rate of 22% or higher on additional income, which changes the calculation significantly.

This distinction may become especially important when you’re managing the transition from pretax accounts to Roth accounts, sizing charitable contributions, or timing the recognition of capital gains. Each decision should be evaluated at the margin. What does the next dollar cost you in taxes, and what does it cost in downstream effects like income-related monthly adjusted amount (IRMAA) surcharges or Social Security taxation?

In some cases, the most valuable window for retirement tax planning is the period between retirement and the start of required minimum distributions (RMDs). These “notch years” represent a brief period when your taxable income may be unusually low — and potentially the lowest it may be for the rest of your life.

When you retire and your earned income stops, Social Security may not have begun or may represent a modest base. RMDs haven’t kicked in. And while your assets are intact, your taxable income for that window may be much lower than during your working years. This gap represents an opportunity to convert pretax retirement funds to Roth accounts at lower tax rates than you paid while working. Those rates could also be lower than your heirs may pay on an inherited traditional IRA.

Strategic Roth conversions during the notch years may help reduce taxable income for both you and your heirs. Each dollar converted and taxed today reduces the pretax balance that ultimately drives RMDs and, therefore, your own mandatory taxable income starting at age 73. It also reduces the inherited pretax balance your heirs may face, potentially replacing it with a Roth balance that grows and distributes tax-free.

The notch years opportunity window

The gap between your last paycheck and your first required distribution, typically ages 62 to 73, is a powerful window for Roth conversions, income management, and IRMAA bracket control.

Required minimum distributions begin at age 73 for most retirees, or age 75 for those born in 1960 or later. These mandatory withdrawals from traditional IRAs, 401(k)s, and other pretax accounts are taxed as ordinary income. They can push you into a higher bracket than you occupied during your notch years.

The challenge with RMDs is that you don’t control the amount. The IRS calculates your RMD based on your account balance and life expectancy, and you must withdraw at least that amount each year. If your RMDs are large enough to push you into a higher bracket, you may pay more in taxes than necessary — even on income you may not need.

Retirement tax planning addresses this by using Roth conversions during the notch years to help reduce the pretax balance that drives RMDs. By converting strategically before RMDs begin, you may be able to manage your bracket more effectively and reduce the mandatory taxable income that arrives later.

2026 Tax Rate Pyramid

Medicare Part B and Part D premiums are based on your modified adjusted gross income from two years prior. Decisions made in 2026 — for example, a large Roth conversion, a property sale, or an IRA distribution — may increase your Medicare premiums in 2028. This two-year lookback means that today’s tax decisions can have a delayed but real impact on your healthcare costs.

For 2026, the standard Part B premium is $202.90 per month.¹ But if your modified adjusted gross income exceeds certain thresholds, you may pay an income-related monthly adjustment amount (IRMAA) on top of the standard premium. In 2026, the thresholds start at $109,000 for single filers or $218,000 for married couples filing jointly.² The surcharges climb sharply at each threshold and can reach as high as $689.90 per month for the highest earners.³

IRMAA is a cliff, not a phase-in. One dollar of income over a threshold triggers the full surcharge for both spouses for the entire year. This makes it essential to model any income-generating decisions with IRMAA thresholds in view — and, in some cases, to spread income over multiple years to avoid or minimize premium surcharges.

Up to 85% of your Social Security benefits may be taxable, depending on your “provisional income,” which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.⁴

For single filers, benefits become taxable when provisional income exceeds $25,000, with up to 50% taxable between $25,000 and $34,000, and up to 85% taxable above $34,000.⁵ For married couples filing jointly, the thresholds are $32,000 and $44,000.⁶ These thresholds haven’t been indexed for inflation since they were established, meaning more retirees are affected each year.

The One Big Beautiful Bill Act (OBBBA) introduced a new $6,000 senior deduction for taxpayers age 65 and older, effective for 2025 through 2028. This deduction, which phases out at higher income levels, may reduce taxable income enough that some seniors owe no federal income tax on their Social Security benefits. However, the deduction is temporary and subject to income limits, so it should be factored into your retirement tax planning but not relied upon as a permanent feature.

If you are age 70 ½ or older, you may direct up to $111,000 per year (for 2026) from your IRA directly to a qualified charity.⁷ A qualified charitable distribution transfers the IRA funds to charity without ever adding to your income. Therefore, you pay no income tax on the distribution, regardless of whether you itemize.

At higher income levels, a QCD is generally more tax-efficient than taking the IRA distribution as income and then deducting the charitable contribution.

For retirees with significant IRA balances and charitable intent, QCDs are one of the most powerful tools in retirement tax planning.

In a taxable brokerage account, positions that have declined in value may be sold to realize a capital loss — which can offset realized capital gains and up to $3,000 of ordinary income annually. Excess losses are carried forward indefinitely. When done consistently throughout the year, tax-loss harvesting may meaningfully help reduce the tax drag on your portfolio over time.

Effective approaches use technology to identify harvesting opportunities throughout the year, not just in December when the best opportunities may already be limited. Capital loss carryforwards are an asset on your tax return and should be tracked, protected, and deliberately .

Tax-Loss Harvesting To Reduce Your Tax Bill
The ideal outcome is using your investment losses to decrease your tax bill.

The strategies described in this guide all share one critical characteristic: They must happen before Dec. 31 to be effective, not April 15 of the next year. The filing deadline confirms what you have already done. The planning work is what helps determine whether what you have done was optimal.

Effective retirement tax planning should have coordination across your entire financial picture: investments, retirement accounts, charitable giving, estate planning, and healthcare costs.

Do you have a complex financial picture? Significant investment assets, business interests, retirement accounts, or estate planning needs? A coordinated approach between a CPA or tax-planning professional and a financial advisor may help produce different outcomes than either relationship alone.

At Mercer Advisors, our tax planning and preparation service considers your broader financial picture year-round and makes forward-looking recommendations that can help influence your tax outcomes before the year closes. We offer integrated financial planning, investment management, tax planning and preparation, estate planning, insurance solutions, and more.