By Colleen Weber, CFP®, CPA 

Tax planning doesn’t usually figure into most people’s retirement daydreams. They’re thinking about freedom: travel, slower mornings, more time with family. Taxes tend to show up once a year, usually when you’re gathering documents and trying to get everything filed on time… then we all happily forget about them again.

But if your goal is to keep more of your money in retirement, taxes can’t be a once-a-year conversation. Retirement is a major shift because you’re no longer just saving; you’re withdrawing, and the way you pull money from different accounts can have a big impact on what you owe.

That’s why I want to walk you through five tax-efficient retirement strategies to help you feel more confident about how your income comes together in this next chapter.

1. Utilize Roth IRA Conversions

Distributions from Roth IRAs are tax-free, so they are a great tool to have in retirement. However, many people cannot contribute directly to a Roth IRA because of income limitations. Instead, you have to convert traditional IRA funds to a Roth account by paying the related income taxes. You can take advantage of low-income years, such as when you have stopped working but are not yet collecting Social Security, to convert your funds to a Roth IRA so you’ll have tax-free income later. 

It is important to be mindful of tax brackets when you do conversions so you don’t inadvertently push yourself into higher tax rates. As we mentioned above, be sure to consider the impact of that 3.8% Medicare surcharge tax. Another crucial item to be aware of is the Income Related Monthly Adjustment Amount (IRMAA) which increases your Medicare premiums if your income is above a certain limit. For 2026, if your Modified Adjusted Gross Income (MAGI) from 2024 is over $109,000 as an individual filer or $218,000 as a couple filing jointly, your premiums will increase. The higher your income, the higher the premium. This is where careful planning can help you manage these additional costs and make the most of your IRA conversions—without unexpected expenses.

2. Limit Your Exposure to the 3.8% Medicare Surcharge Tax

If you have a higher income and have investment income, you should be aware of the 3.8% Medicare surcharge tax. This tax applies to individuals and couples whose earnings exceed certain limits, meaning they contribute more to Medicare and help support the healthcare system for everyone. Here’s how it works:

If you’re single and make more than $200,000, or if you’re married and together make more than $250,000, this 3.8% tax may apply to you. These income limits are based on your Modified Adjusted Gross Income (MAGI)—that’s your usual income with some deductions added back in, such as tax-free foreign income, IRA contributions, and student loan interest. 

The surcharge tax affects what you earn from investments such as stocks, bonds, and real estate (which includes interest, dividends, annuities, gains, passive income, and royalties). The IRS calculates this tax on whichever is less: your total net investment income or the amount by which your income goes over those $200,000 or $250,000 thresholds.

If your MAGI is near or above the thresholds, there are steps you can take to limit your exposure. First, you will want to review the tax efficiency of your investment holdings. It may be worthwhile to move less efficient investments into tax-deferred accounts and capitalize on tax-loss harvesting. Other moves you can make include investing in municipal bonds, which have tax-free interest, and taking capital losses to offset gains. Installment sales can spread out large gains and minimize your adjusted gross income, and real estate like-kind exchanges can also defer gains and their taxability.

3. Take Advantage of the 0% Rate on Long-Term Capital Gains

If the Medicare surcharge tax is irrelevant to you because your income is lower, then you may be able to take advantage of the 0% long-term capital gains rate. Profits on the sales of assets owned over a year are tax-free if your 2026 taxable income is below $49,450 for singles or $98,900 for married couples filing jointly. Once you exceed those thresholds, long-term capital gains are taxed at 15% until your taxable income for 2026 gets above $545,400 for singles or $613,700 for couples, at which point the tax rate goes up to 20%.

Claiming more deductions or making deductible IRA contributions can help keep your taxable income within the 0% capital gains tax range while also providing their usual tax benefits. However, you will want to be strategic about taking tax-free gains as they can raise your adjusted gross income and affect the taxability of your Social Security benefits. Also, taking those gains may incur state tax liabilities as well.

4. Be Strategic About Inherited IRAs

The IRS clarified rules for inherited IRAs in July 2024, addressing concerns about the 10-year rule introduced in 2020. Non-spousal beneficiaries must now take required minimum distributions (RMDs) annually if the decedent had already started RMDs. Additionally, the inherited IRA must be completely depleted by the end of the 10th year following the account holder’s death.

Key exceptions to the 10-year rule remain unchanged. These include surviving spouses, minor children, disabled or chronically ill beneficiaries, and those less than 10 years younger than the deceased. These groups can continue to use the stretch IRA approach, taking distributions over their life expectancy.

For beneficiaries of account holders who passed away before their RMD age (currently 73), there is more flexibility. In these cases, beneficiaries are not required to take RMDs in years 1 through 9, allowing for strategic tax planning during the 10-year period.

Being strategic about timing withdrawals is crucial to managing tax implications and minimizing overall tax liability.

5. Donate Effectively

If you are charitably inclined, one of the best ways to save on taxes is through donations. Bear in mind that rules regarding deductibility of charitable contributions have changed significantly.

Starting in 2026, due to the One Big Beautiful Bill Act (OBBBA), charitable contributions that are less than 0.5% of your adjusted gross income (AGI) are no longer deductible as itemized deductions, though any excess over this floor level will be deductible. Non-itemizers may deduct up to $1,000 in cash contributions (married couples filing jointly may deduct up to $2,000).

High-income donors who itemize are capped at 35% for charitable deductions, even if the taxpayer(s) is in a high federal tax bracket.

Another strategy to consider is the use of a charitable lead annuity trust or a donor-advised fund, which allow you to take an up-front write-off that can help offset other income, such as from a Roth IRA conversion or withdrawal from an inherited IRA. Qualified charitable distributions (QCDs) may also be effective tools to offset required minimum distributions (RMDs) from IRA accounts.

Supporting You With Tax-Efficient Retirement Strategies

Taxes can have a bigger impact in retirement than many people realize. With proactive planning, tax-efficient retirement strategies may help reduce that burden and keep more of your savings working for you. Because every situation is different, the right approach depends on your income sources, account types, timing, and long-term goals.

That’s why I don’t recommend trying to piece this together through guesswork or generic advice. You deserve a plan that fits your life and gives you confidence moving forward.

If you’d like support, I’m here. If you don’t already have a financial advisor you trust, I’d love to talk and help you explore what’s possible. My team and I at Colleen Weber CPA, CFP^® can help you sort through the options and build a retirement plan that feels clear, aligned, and tax-smart. Take the first step and book an  introductory meeting online or call (952) 470-0750.

About Colleen

Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER® professional, and CPA based in Chanhassen, Minnesota. With more than 20 years of financial planning experience, Colleen provides comprehensive financial planning and wealth management. She specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.