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Think the low-income years before Social Security are going to be a problem?

thinking about social security

Think again—this period could be your secret weapon for a tax-efficient retirement.

For most people, tax planning is an afterthought. It’s a quick conversation with a CPA at the end of the year to see if there are any available deductions, but not much more.

The good news is that by planning ahead and using the strategies I’m going to explain below, you can substantially lower the taxes you pay in retirement. It doesn’t even have to be complicated.

Retirement tax planning is built around three ideas.

  • Pay taxes when your rate is lowest. 

  • Fill up your lower tax brackets to lock in the lower rate. 

  • Maximize your deduction, whether you itemize or take the standard deduction.

Keep reading and I’ll show you three strategies for putting these principles into action.




  • How taxes work in retirement

  • 3 Strategies for paying less taxes after retiring

  • Which accounts you should be pulling money from and when


Let’s start with a quick tax primer.

Before we jump in, I want to explain two ideas. First, how income is taxed. Second, how deductions work. There’s some misconceptions around each, so it’s important to make sure we have a baseline understanding before we move on to strategies.


Unlike your working years, when income typically comes from a single job, retirement income comes from multiple streams like Social Security benefits, pensions, annuities, and withdrawals from retirement accounts like 401(k)s and IRAs. Each of these income sources has its own tax implications.

For example, Social Security benefits may be partially taxable depending on your overall income, while withdrawals from Traditional IRAs and 401(k)s are generally taxed as ordinary income. On the other hand, Roth IRAs offer tax-free withdrawals, and long-term capital gains have lower tax rates than ordinary income.

Most retirement income falls into one of three buckets. Here’s a summary of each, along with their tax treatment.

  • Ordinary Income: This includes wages, salaries, and most income from retirement accounts like Traditional IRAs and 401(k)s. The tax rate varies from 10% to 37% based on your income level. Social Security falls into ordinary income too, although it’s different because only a portion, up to 85%, is taxable.

  • Long-Term Capital Gains: This applies to profits from selling assets like stocks or real estate that you've held for more than one year. The tax rates are generally lower, ranging from 0% to 20%.

  • Non-Taxable: Withdrawals from Roth IRA’s are considered post-tax money, because the taxes have already been paid. No taxes are due on withdrawals. Return of basis from selling assets is also non-taxable.


When it comes to deductions, you have two options: itemizing deductions or taking the standard deduction.

The standard deduction ($27,700 for a married couple, under 65) is a fixed amount set by the IRS that you can subtract from your income, no questions asked. It's simple, straightforward, and doesn't require extensive record-keeping.

On the other hand, itemizing deductions involves listing out specific expenses you've incurred throughout the year that are tax-deductible, such as mortgage interest, state and local taxes, certain medical expenses, and charitable contributions.

Most retirees find that they don’t have enough deductions to justify itemizing; they’re typically better off taking the standard deduction.

Now Let’s Talk Tax Strategies for Social Security

There are many strategies for lowering your taxes in retirement, but these are the three I use most often.

  • Roth Conversions

  • 0% Capital Gains Rate

  • Gift Bunching

Roth Conversions

Roth conversions allow you to essentially prepay your taxes at a lower rate. You do this by converting a portion of your Traditional IRA into a Roth, hence the term Roth conversion. When you convert the money, it’s a taxable transaction and the full amount you convert will count as income for that year.

Over time, you’re shifting the bulk of your pre-tax IRA into your post-tax Roth. You’re locking in the lower income tax rate while allowing the money in your Roth to grow tax-free. It also lowers your future RMD amounts, since a majority of the growth will be in your Roth

Here’s a great chart showing the change from one of my favorite sites, You can see how the Roth account value, the green bar, becomes a greater and greater percentage of the total portfolio value.

roth conversion for maximizing low income years before social security

You’re probably thinking sounds good, now how do I know the amount to convert each year?

That’s where the planning comes in. I’ll talk more about an overall strategy below, but the quick answer is that you want to fill up your 10% & 12% buckets. From the chart below, you can see that a married couple can have taxable income up to $89,450 ($117,150 when you consider the standard deduction) and still only pay a 12% marginal rate. Beyond that income level, your marginal rate jumps to 22%.

tax brackets, how to maximize low income years

0% Capital Gains

I mentioned before that ordinary income and long-term capital gains are taxed differently, with capital gains receiving a preferential rate. The rates are extremely preferential in the lower tax brackets, with capital gains for both the 10% & 12% tax brackets paying no tax at all.

Sounds too good to be true, right?

Let’s walk through an example.

Bob and Joan are married and file their taxes jointly. At the end of the year, they had $45,000 in ordinary income and sold Apple stock at a gain. The gain from Apple stock was $25,000.

Their taxes will look like this:

$45,000 - $27,700 (standard deduction) = $17,300 * 10% tax rate = $1,730 tax due

$25,000 * 0% capital gains rate = $0 tax due


Taking advantage of the 0% rate can be a great way to diversify a concentrated position or when you’re selling a stock to cover your withdrawals.


Gift Bunching using a Donor Advised Fund

Most retirees are unable to justify itemizing their deductions, which causes them to lose the deduction for any charitable giving that they’ve done. That’s a problem.

The solution is to pair gift bunching with a donor advised fund.

Let’s break it down into two parts. First, what is a donor advised fund? It’s basically a charitable bank account. When you contribute to a DAF, you receive an immediate tax deduction for the full amount of your donation, even though the funds can be distributed to charities over an extended period. The money in the DAF can be invested, allowing it to grow, thereby increasing the impact of your gifts. You still have the ability to direct the funds to the charities of your choice, allowing you to continue making your gifts.

Next, what is gift bunching? Gift bunching is making several years’ worth of donations in one year, which allows you to justify itemizing your deductions in that year. In the years you’re not gifting, you can simply take the standard deduction.

By pairing gift bunching with a DAF, you can make a single gift in one year, take the tax deduction, then continue gifting to your church or favorite charity on the same schedule you would have anyway. It’s the best of both worlds. The only downside is that once you gift assets to a DAF, you no longer own them. They belong to the DAF; you only have the ability to decide the charity that receives them.

This one is a bit wonky, so if you prefer a video explanation…here you go.

Building a Tax Strategy

Now that we’re good with the different types of taxes, let’s look at how you actually build a strategy. This starts by looking at your withdrawal strategy. For our purposes, I’m speaking to withdrawals that begin prior to taking Social Security.

  • How much after-tax income do you need? This number drives everything else.

  • Calculate how much, if any, guaranteed income is available. Early in retirement this is usually limited to pensions or VA disability. Consider any rental properties or real estate income here too.

  •  Subtract the difference between the income you need and what you have coming in.

Now you know how much income you’re going to supplement from your retirement savings. This brings me to the important question, where will this income come from?

Typically, you want to withdraw money from your retirement savings in this order:

  1.  Non-Qualified Assets like savings or brokerage accounts

  2. Traditional IRA’s and 401(k)’s

  3. Roth IRA’s

By withdrawing in this order, you’ll minimize your taxes while setting up your portfolio for tax-advantaged growth.

Once you’ve determined the type and amount of withdrawals that you’ll need to meet your desired income, you can estimate your taxable income for the year. From this, you can compare your taxable income to the IRS tax brackets and see how much room you have left before you push into the next bracket.

You want to make sure that you’re filling up your 10% and 12% tax brackets. You can do this via Roth conversions or by taking advantage of the 0% capital gains rate that I discussed above.


Let’s look at Bob and Joan from earlier, ignoring the Apple stock sale. They have a taxable income of $45,000 and $1,000,000 in their Traditional IRA’s.

$45,000 - $27,700 (standard deduction) = $17,300 taxable income

They want to convert as much as they can while staying in the 12% tax bracket. This bracket goes up to $89,450 in taxable income for a married couple filing jointly.

$89,450 - $17,300 = $72,150 that they can convert from their Traditional IRA’s to their Roth IRA’s.

Now let’s add in gift bunching using a DAF. This is where it gets a bit trickier.

The ideal candidate for gift bunching is someone with an appreciated asset, like stock, that they don’t want to sell because of the potential tax consequences. I see this a lot when someone has spent decades working for a company and has accumulated significant amounts of their employer’s stock. They want to do something with it, but they don’t have a lot of options because they’ll realize significant taxes if they sell.

By bunching 3 – 5 years’ worth of gifts into one year, they can deduct that gift and net the donation against their current income. They can even leverage the donation by pairing it with Roth conversions in an amount equal to the deduction. This should net out to $0 extra in taxes but allow for more money growing tax-free in a Roth IRA.

One key point is to contribute the assets directly into the DAF. Do Not Sell First. DAF’s can sell the assets without paying capital gains taxes, whereas you can’t.

Speaking of assets, you can contribute more than just stocks or cash. Here are some ideas:

  • Non-Cash Assets

  • Publicly Traded Securities

  • Restricted and Control Stock

  • Closely Held Business Interests

  • Hedge Fund Interests and Private Equity

  • Real Estate

  • Fine Art, Collectibles or Other Tangible Personal Property

Tax planning doesn't have to be a last-minute scramble; it should be a strategic part of securing your comfortable retirement. By focusing on three core principles—timing your tax payments for when your rate is lowest, filling up your lower tax brackets, and maximizing your deductions—you can take proactive steps to minimize your tax burden in your golden years.


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