There’s a saying that goes, only two things in life are guaranteed: death and taxes. In all likelihood, you’ve paid your fair share of taxes. While you don’t mind paying your fair share, you don’t want to pay more. At REAP Financial, we always emphasize that in retirement you can have more control over your taxes than any other time in your life. However, you have to have a tax strategy.
Oftentimes, people think about tax strategy as esoteric plans which cost a lot of money or are very complex, with tax attorneys or estate attorneys involved. Depending on the size of your wealth, you may need those resources, but for most people it’s not that complicated. In this article, we’ll go over how to implement tax strategies in your retirement for true success.
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Determine Your Own Tax Bracket
When you retire, you want to make sure you’re keeping every dollar you can via taxes. Since you need your money to last as long as you do, implementing strategies to keep your taxes down is essential. To start, determine what your tax goals are. By that we mean principally determining what tax bracket you want to be in.
In retirement, you have more control to choose your tax bracket, relative to the rest of your life. For example, when you’re working and getting a W-2 paycheck, you don’t have control. As your pay rises and you climb the career ladder, you can only hope your taxes don’t go up too much. But when you reach retirement, you have more control. Each year, depending on how your wealth and portfolio are designed, you can determine how you want to approach your income and taxes. You may decide you want to pay more taxes this year or for the next few years than you want to pay in the next 10 years.
Control When You Pay More or Less Taxes
Now, why would somebody want to pay more taxes in this year, the next year, or beyond? Right now, in 2025, the tax rates are the lowest they have been in the past 40 years. Think back to the seventies. At that time, the top tax rate was 90%. Today’s rate at the top is 37%. That doesn’t sound like much compared to the 70s. On top of these rates being historically low, you can take control through planning.
For example, you may decide to live a year on cash at the bank, which you’ve already paid tax on. This could be cash in your savings, CDs, money markets, etc. If you’re not touching your deferred accounts, like IRAs and 401(k)s which are taxable, and you’re not yet taking Social Security, you would essentially be income free. You might have a small amount generated from interest on your savings, but nothing major. So, if you pulled $60,000–$80,000 to live on out of the bank, without any other income, you would be in the lowest tax bracket you’ve probably ever had.
But why would you want to do that? What can you do with that opportunity? In that year, when you have virtually no income, you could potentially sell appreciated stocks in your investment accounts and pay zero capital gains tax. In this way, you could harvest tens of thousands of dollars in gains, up to a certain limit. As always, consult with your CPA and see what you could get without paying taxes. Similarly, you could follow this strategy for several years to divest your appreciated assets. By doing so, you could save hundreds of thousands of dollars in taxes and just bank the cash.
You could think about this another way. Let’s say you’re in a 0% tax bracket and you’ve got a lot of money in IRAs and 401(k)s. This year, you may choose to pay more taxes, live on cash, show no income, and convert a substantial amount, say $200,000–$300,000, to a Roth IRA. If you’re a married couple, you could convert approximately $300,000 and still be in a 24% tax bracket. Many of our successful clients at REAP Financial take advantage of this strategy. We help them design a Roth conversion plan, which helps you know what assets you’ll be living on—not just what stocks, but also what tax classification you’ll have. This is important because your portfolio is made up of money that’s never going to be taxed, money that’s always going to be taxed, and money that’s going to be somewhat taxed. Managing these three buckets is essential and not that complex.
Let’s take it one step further, and say you’re living on cash and you’re going to take Social Security. If you’re 62 or of Social Security age, 85% of your benefit is going to be taxed at whatever tax bracket you’re within. While it’s possible to get under the limits, it is difficult. If you’re a married couple taking Social Security and you have under $32,000 of reported income, you’ll pay zero tax on your Social Security benefits and net every dollar. If you’re single, that’ll be $25,000. Remember, half of your Social Security benefit counts towards that $25,000 or $32,000, so ensure you consult with a CPA before following one of these strategies.
Use Tax Efficient Accounts
Another way to pay fewer taxes in retirement is to use tax efficient accounts. If you’re looking to reduce your taxes and you have earned income, put money in a Roth IRA, SEP IRA, or 401(k), depending on your type of work. If you’re employed or self-employed, you may not be able to use those accounts, but they’ll give you a nice tax deduction. So, if you’re looking for ways to save, you may want to strategically save in accounts that will save you taxes through the years.
Remember, if you put money in a Roth IRA, you won’t get a tax deduction today, but that money grows tax-free forever. That helps put you in control of your money. Plus, there’s no required distributions on a Roth IRA. If you want to learn more about our tax buckets, send us an email at retire@reapfinancial.com. Just mention Tax Brackets in the subject line, and our team will get it to your inbox.
Strategically Time Your Income in Retirement
If you’re willing to get a bit more planned, having a timing strategy with your income can be another tax strategy. You have lots of choices in retirement: where will you be taking your income from? When will you take Social Security? At what point will you start taking money from your 401(k)? And so on. Although the choices are in your hands, many people don’t have a strategy for approaching income.
However, having a withdrawal strategy not only can ensure that your money will last much longer, but also coordinate it with what income tax you’re going to pay. For example, many people consider deferring their Social Security from 67 to 70, because it’s growing by 8% a year. On the other hand, many people decide to go ahead and claim Social Security to avoid having to pull a lot out of their 401(k) or IRA. When you’re making this decision, recall that while 100% of income coming out of a 401(k) is taxable, only 85% of Social Security is taxable in most cases. Although we’re talking about 15%, which may seem small, that number adds up over time.
You may also have annuities designed for income, which when turned on will be taxable. If it’s an IRA, it will be taxable your entire life. If it’s a non-qualified annuity, it’ll be taxable until you get to your basis. With all these intricacies, there’s no wonder there are strategies for how much you should put in certain types of investments. This is why so many families work with us at REAP Financial. They want to optimize and protect their wealth, so they can keep it and enjoy it. When you’ve worked hard for a lifetime, making smart choices with your money in retirement helps you leave a lasting legacy and make a real impact on the world.
Need Help Reducing Your Taxes in Retirement?
At REAP Financial, we specialize in helping families in Austin, TX create tax-efficient retirement income strategies, manage IRA and 401(k) distributions, and optimize Roth conversions. Our fiduciary advisers are here to walk you through every step.
Schedule a consultation today to explore how you can help minimize taxes and make your wealth last.
Contact REAP Financial
Phone: (512) 249-7300
Email: retire@reapfinancial.com
Office Address: 9414 Anderson Mill Rd #100, Austin, TX 78729
Disclosure: This content is sponsored by REAP Financial Group, LLC. Investment advisory services provided by REAP Financial Group, LLC — a Registered Investment Adviser. Opinions expressed in this article are for informational purposes only and may change without notice. This content does not constitute personalized investment, tax, or legal advice. Please consult your financial adviser and tax professional before making any financial decisions. Registration does not imply any level of skill or endorsement by securities regulators.
Chris Heerlein, a Texas native, is the CEO of REAP Financial and founder of REAP Private Client Group (RPCG), specializing in wealth creation, preservation, and growth for affluent individuals, business owners, and executives. RPCG provides financial and investment advice, advanced tax strategies, business succession planning, and excellent client service. Chris is a trusted financial advisor, author of Divorce With Dignity (2019) and Money Won’t Buy Happiness But Time to Find It (2017), and a columnist for Kiplinger Personal Finance Magazine.
He has been featured in Fortune, Money Magazine, Bloomberg Businessweek, and U.S. News & World Report. Chris also hosts Wealth Radio on NewsRadio KLBJ and is a sought-after speaker. Based in Austin, Texas, he lives with his wife, Hannah, and their three children and actively supports charitable causes.
