Nobody gets terribly excited about paying taxes in retirement, but taxes are part of the retirement picture, and the real question is not whether you can avoid them entirely. The better question is whether your retirement income is being coordinated in a way that helps reduce surprises, preserve flexibility, and support the life you are trying to live.
Good retirement tax planning starts with understanding that not all income is taxed the same way. Withdrawals from a traditional IRA or 401(k), Roth accounts, taxable investment accounts, Social Security, pensions, and cash reserves can all affect your tax return differently. In plain English, retirement income planning is a little like deciding which faucet to turn on and when. Turn on the wrong one too aggressively, and you may create a bigger tax mess than necessary. Turn them on thoughtfully, and you may have more control than you expected.
For taxable investment accounts, one simple but often powerful planning principle is to be aware of the difference between short-term and long-term capital gains. In general, investments held for one year or less are treated as short-term, while investments held for more than one year are treated as long-term. That distinction matters because long-term capital gains may qualify for lower federal tax rates than ordinary income, while short-term gains are generally taxed more like regular income. This does not mean you should let the tax tail wag the investment dog, but if you are considering selling an investment, even a small amount of timing awareness can sometimes make a meaningful difference.
Another helpful concept is asset location, which simply means paying attention to which investments are held in which types of accounts. Investments that tend to produce higher taxable income, such as high-dividend securities or income-oriented funds, may be better suited for tax-deferred accounts like traditional IRAs or tax-free accounts like Roth IRAs, where that income is not taxed year by year. Meanwhile, investments that produce little current income, or are more likely to benefit from long-term capital gains treatment, may often fit well in taxable accounts. The goal is not to overhaul the portfolio just for taxes, but to let each account type do the job it is best equipped to do.
Tax-loss harvesting can also play a role in a tax-efficient retirement income plan. In a taxable account, if an investment has declined in value, selling it may create a realized capital loss that can help offset realized capital gains elsewhere in the portfolio. If losses exceed gains, a limited amount may also be used against ordinary income, with unused losses generally carried forward to future years. The trick is to be intentional, not reactionary. Harvesting a loss should still fit the overall investment plan, and investors need to be careful about wash-sale rules, which can disallow a loss if a substantially identical investment is repurchased too soon.
One of the most overlooked opportunities often happens in the years just before or early in retirement. Many people retire before required minimum distributions (RMDs) from IRAs begin (age 73 or 75 depending on birth year), which can create a window where taxable income is lower than it may be later. That window may be a good time to evaluate Roth conversions before retirement or early in retirement. A Roth conversion is not automatically good or bad—it simply means choosing to pay some tax now in exchange for potentially more tax-free flexibility later. Like most planning tools, it works best when handled with a calculator, not a hunch.
RMD planning is another area where a little foresight can help. Once RMDs begin, the IRS becomes your retirement account’s least sentimental beneficiary. If you are charitably inclined, strategies such as a qualified charitable distribution (QCD) may allow you to give directly from an IRA which avoids income tax on the distribution (you must be age 70 ½ or older to make QCDs). For families who see generosity as part of faithful stewardship, this can be a meaningful way to align tax-efficient charitable giving with purpose.
The point of retirement tax planning is not to chase every clever idea you hear about, or to turn your life into one long tax project. The point is to make sure your income, investments, Social Security, charitable giving, and estate goals are working together instead of bumping into each other. When those pieces are coordinated, retirement decisions can feel less reactive and more intentional. You may not eliminate taxes, but you can often reduce surprises, preserve flexibility, and make wiser choices with the resources entrusted to you.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Jeff Funderburk is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice. Copyright ©2026 Jeff Funderburk. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
