Tax Planning for Retirees: Building a Tax-Efficient Retirement Income Strategy

When it comes to retirement, there's a critical factor that can significantly affect your long-term financial security: taxes.

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Without a strategy in place, taxes can quietly erode your retirement savings. The good news? With a little foresight and smart planning, you can minimize what you owe and keep more of your hard-earned money. In this article, we’ll walk you through tax-efficient strategies for retirees that will help you build a more sustainable retirement income.

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Why Tax Planning in Retirement Matters

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Many retirees are surprised to learn that taxes don’t disappear after their working years end. In fact, income from sources like:

• Social Security
• 401(k)s and IRAs
• Pensions
• Investment accounts

may still be subject to federal and state income taxes, and in some cases, even push you into a higher tax bracket.

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A thoughtful plan isn’t just about reducing your current taxes, it’s about structuring withdrawals and assets to optimize your retirement income long term.

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Tax-Efficient Withdrawal Strategies

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One of the most important areas to address is how to efficiently withdraw from your retirement accounts. Here are three proven tax-efficient withdrawal strategies you should know:

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1. Follow the Tax Bracket “Fill-Up” Strategy

Withdraw just enough from pre-tax accounts (like traditional IRAs or 401(k)s) to fill up your current tax bracket, without tipping into the next one. This helps smooth your tax liability across multiple years.

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2. Utilize Roth Conversions

Converting traditional IRA funds to a Roth IRA during lower-income years can reduce future taxable income. The upfront tax cost can be worth the long-term benefit of tax-free withdrawals.

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3. Manage Required Minimum Distributions (RMDs) Strategically

Once RMDs begin at age 73, you must take, and pay taxes on, distributions whether you need the income or not. Planning ahead by drawing down tax-deferred accounts earlier or using Qualified Charitable Distributions (QCDs) can help reduce the impact.

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Key Considerations

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Every retiree’s tax picture is unique, but here are a few foundational points to consider:

• Social Security Taxes: Up to 85% of benefits may be taxable depending on your income.
• State Taxes in Virginia: Virginia does not tax Social Security income, but other
• retirement income is taxable.
• Capital Gains Taxes: Timing withdrawals from taxable accounts can reduce long-term
• capital gains taxes.
• Healthcare Surtaxes: High income could trigger Medicare IRMAA or Net Investment
• Income Tax (NIIT).

Building a Personalized Retirement Tax Plan

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A cookie-cutter strategy won’t cut it. Your income sources and retirement goals all play a role. A financial advisor can help you:

• Project your lifetime tax exposure
• Coordinate withdrawal timing across multiple accounts
• Identify Roth conversion opportunities
• Adjust investments with tax efficiency in mind

At Legacy Wealth Management, our financial advisors specialize in helping retirees create personalized tax-efficient income strategies that preserve wealth and without sacrificing your hard-earned income.

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Next Steps

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If you're nearing retirement or already there, now is the time to plan ahead. Effective tax planning for retirees isn't just about avoiding mistakes; it's about maximizing your income for when you need it most.

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Schedule a complimentary consultation with one of our advisors by calling (877) 650-4738 or visiting us at www.lwealthmanagement.com and begin your tax-efficient retirement plan today.