When people think about retirement planning, they tend to focus on a few big questions: When can I retire? How much can I spend? When should I take Social Security? How should my investments change once I stop working?
Those are all important questions. But there is another opportunity that can easily be overlooked.
For many families, the first several years of retirement can be some of the most valuable tax-planning years of their lives.
Think about what changes when you retire. Your salary and bonuses may disappear. Social Security may not have started yet. You may have pension and investment income, but you may not need to take much from your retirement accounts. Required minimum distributions, or RMDs, may still be years away.
For perhaps the first time in decades, you may have meaningful control over how much taxable income appears on your return.
The opportunity is not simply to pay less tax today. It is to decide how to use those lower-income years before Social Security and RMDs begin filling up your tax return again.
Retirement Can Create a Unique Tax-Planning Window
During their working years, a tax return may include salary, bonuses, investment income, capital gains and perhaps business income. After retirement, much of that can disappear.
Eventually, other income sources may take its place. Social Security begins. Pension payments may start. And under current law, RMDs generally begin at age 73 or 75 depending on your birth year.
In between, however, there can be several years when taxable income is substantially lower.
I think of this as the retirement tax window.
The value is not simply having less income. It is having more control over when income is recognized.
“I Don’t Need My IRA Yet. Why Would I Take Money Out?”
You may have spent decades saving in a 401(k) or IRA and deferring taxes. After retiring, you may have enough cash and taxable investments to support your lifestyle. Why take money from an IRA and voluntarily pay tax if you do not need it?
Sometimes leaving the IRA alone makes sense. But there is a bigger picture to consider.
If a traditional IRA continues growing, eventually RMDs will force money out whether you need it or not. Those distributions could arrive on top of Social Security, pensions, dividends, interest and other income.
For married couples, there is another issue. Eventually, one spouse is likely to predecease the other. The surviving spouse could have many of the same assets and similar income, but eventually file as single with narrower tax brackets.
That is why the right question is not always, “How can I pay the least tax this year?”
A better question may be: “How can I manage taxes over the rest of my life and potentially for the next generation?”
Three Ways to Use the Retirement Tax Window
Roth Conversions
A Roth conversion moves money from a traditional IRA into a Roth IRA. The amount converted is generally taxable as ordinary income in the year of conversion. In exchange for paying tax today, qualified Roth withdrawals can be tax-free in the future.
A conversion can also reduce the amount remaining in the traditional IRA, potentially reducing future RMDs. That can make conversions attractive, but it does not mean converting as much as possible is always right.
Strategic IRA Distributions
A Roth conversion is not the only reason to take money from an IRA before RMDs begin.
It may make sense to take a taxable distribution earlier than necessary if you expect those same dollars to eventually be distributed at a higher tax rate. The money could fund living expenses, gifting or other goals while allowing other assets to remain invested.
Capital-Gain Harvesting
It may be an opportunity to sell appreciated investments and intentionally recognize long-term capital gains. Long-term gains can qualify for a 0% federal rate when taxable income is low enough. For 2026, the 0% long-term capital-gain bracket extends through $98,900 of taxable income for married couples filing jointly and $49,450 for single taxpayers.
This may allow you to recognize gains and increase cost basis while paying little or no federal capital-gains tax on part of the gain.
But there is an important catch.
Your Tax Bracket Does Not Tell the Whole Story
Suppose someone looks at a tax projection and says, “I’m in a relatively low tax bracket. Let’s convert enough of my IRA to fill up the bracket.”
That may sound reasonable, and sometimes it is. But your ordinary-income tax bracket does not necessarily tell you the true marginal cost of recognizing additional income.
A Roth conversion or IRA distribution can affect other areas of the return. Additional income may:
- Cause qualified dividends or long-term capital gains to move from the 0% federal rate to the 15% rate
- Cause more Social Security benefits to become taxable
- Reduce or phase out certain deductions, credits or other income-sensitive tax benefits
- Increase Medicare premiums through IRMAA
- At higher income levels, contribute to exposure to the 3.8% Net Investment Income Tax
- Increase state income taxes
That means a Roth conversion taxed in a relatively low ordinary-income bracket is not necessarily costing only that stated rate.
When a Roth Conversion Turns 0% Capital Gains Into 15% Gains
This is a good example of why the pieces of a financial plan need to be considered together.
Long-term capital gains and qualified dividends have their own federal tax brackets. Ordinary income, including taxable IRA distributions and Roth conversions, generally fills the income stack beneath them.
Consider a recently retired married couple with $60,000 of taxable ordinary income, $30,000 of qualified dividends and long-term capital gains, a significant traditional IRA, and no immediate need for IRA distributions.
Based on their overall taxable income, some or all of those qualified dividends and gains may fall within the 0% capital-gains bracket.
Now imagine they complete a $30,000 Roth conversion.
The conversion adds $30,000 of ordinary income. They need to calculate the income tax on the conversion, but that is not the end of the story.
The additional ordinary income also pushes their qualified dividends and long-term gains higher in the income stack. A portion that otherwise could have been taxed at 0% may instead be taxed at 15%.
The conversion could still be a good decision, but we now have a more accurate picture of its cost.
Perhaps the better planning opportunity that year is to realize more capital gains at 0% and complete a smaller Roth conversion. That is why I view available tax capacity as something that can be allocated, not simply filled.
Watch for the Other Tax Dominoes
Social Security
Once Social Security begins, additional IRA income can cause a greater portion of Social Security benefits to become taxable. As a result, adding another dollar of IRA income can sometimes create more than one dollar of additional taxable income.
This is one reason Roth conversions may deserve more consideration before Social Security begins, although every situation is different.
Medicare Premiums
Higher income can increase Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount, commonly called IRMAA. Medicare generally uses income from two years earlier when determining these surcharges, so a Roth conversion today can potentially affect Medicare premiums two years later.
That does not mean you should automatically avoid a conversion that increases Medicare premiums. If the long-term tax benefit is compelling, the conversion may still make sense. The additional premium simply belongs in the calculation.
Deductions and Other Tax Benefits
Certain deductions, credits and other provisions of the tax code are income-sensitive. Additional income from a distribution or conversion can reduce or eliminate some of those benefits depending on your circumstances.
The point is to understand the entire tax consequence before creating additional income intentionally.
Net Investment Income Tax
Higher-income retirees may also need to consider the 3.8% Net Investment Income Tax. A Roth conversion is not itself net investment income. However, because it increases modified adjusted gross income, it can potentially cause more investment income to become subject to the tax once the applicable thresholds are exceeded.
Do Not Automatically “Fill the Bracket”
You have probably heard the strategy of converting enough of your IRA each year to “fill up” a particular tax bracket.
That is a useful starting point, but it should not be the entire strategy.
Before deciding how much income to intentionally recognize, I would want to look at ordinary-income brackets, capital gains and qualified dividends, Social Security, Medicare IRMAA, available deductions, Net Investment Income Tax, state income taxes, charitable giving, capital-loss carryforwards, cash available to pay conversion taxes, future RMDs, expected future tax rates and estate-planning goals.
The real question is not: “How much room do I have left in my tax bracket?”
It is: “How much additional income should I intentionally recognize this year after considering everything else it affects?”
Think in Years, Not Just December 31
Retirement tax planning should not look at each year independently.
Suppose you retire at 65 and are not required to take RMDs for several more years. You do not necessarily need to make one large tax decision immediately. Instead, you can build a multi-year plan.
One year may be particularly attractive for a Roth conversion. Another may provide an opportunity to realize capital gains at 0%. A year with unusually large charitable deductions may create more room to recognize income. A year with significant portfolio gains may call for a smaller conversion.
The plan can also change when Social Security starts or Medicare becomes an important consideration.
Each year, it can make sense to revisit the tax projection using actual income, realized gains and losses, charitable contributions and other relevant information. From there, you can decide how much additional income, if any, should be recognized before year-end.
Do Not Forget About the Next Generation
Another part of Roth conversion planning can get overlooked: Who will eventually pay the tax on the IRA?
If you expect to spend most of your retirement accounts yourself, that is one analysis. If you expect to leave a substantial IRA to children or other beneficiaries, that is another.
Under current rules, many non-spouse beneficiaries eventually have to distribute inherited retirement accounts within a limited period. Their income and tax rates can therefore matter when evaluating whether paying some tax during your lifetime makes sense.
That does not mean parents should automatically convert an IRA because their children might someday pay higher taxes. But if your goal is to preserve and transfer wealth efficiently across generations, your beneficiaries’ potential tax situation belongs in the conversation.
Tax planning, retirement-income planning and estate planning should not happen independently.
In practice, the tax return should be viewed as part of the retirement-income plan, not simply a record of last year. Withdrawals, Roth conversions, investment sales and charitable gifts can compete for the same limited available annual tax capacity. Looking at them together can help avoid solving one problem while inadvertently creating another.
The Goal Is Not to Pay the Least Tax This Year
Retirement can provide a window that did not exist while you were working and will not necessarily remain open forever.
Before RMDs begin, and potentially before Social Security starts, you may have significant control over taxable income. The key is deciding how to use that control.
A Roth conversion may make sense. An IRA distribution may make sense. Harvesting long-term capital gains at a 0% federal rate may make sense. In some years, doing very little may be the best decision.
That is why I do not think retirement tax planning should be about simply minimizing this year’s tax bill or blindly filling a tax bracket.
The goal is to make thoughtful decisions today that can improve your family’s long-term, after-tax financial picture.
And the years between your final paycheck and your first required distribution may provide one of the best opportunities to do exactly that.
Disclaimer:
A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.
