Three Tax Legs for a Secure Retirement

If you’ve ever tried to sit on a one-legged stool, you know how that ends.

The same goes for retirement planning—especially when it comes to taxes. A sound retirement strategy isn’t just about saving; it’s about where and how you save. That’s where tax planning enters the picture. Done right, it can keep more money in your pocket, and less in Uncle Sam’s. Done wrong, it can turn a well-funded retirement into a tax-fueled headache.

Think of retirement tax planning as a three-legged stool:  1. Tax-Deferred Accounts  2. Tax-Free Accounts  3. Taxable Accounts

Let’s take a seat and look at each leg.

1. Tax-Deferred Accounts – The “Pay Later” Bucket

These are your traditional 401(k)s, 403(b)s, and IRAs. You contribute pre-tax dollars, they grow tax-deferred, and then—when you're retired and ideally in a lower tax bracket—you pay ordinary income tax on withdrawals.

The Good: You lower your taxable income now. That’s especially nice during peak earning years.

The Catch: Every dollar you pull out later is fully taxable. Plus, once you hit age 73 (for most retirees today), the IRS starts tapping you on the shoulder for Required Minimum Distributions (RMDs), whether you need the money or not.

Strategy Tip: Use your early retirement years (before Social Security and RMDs kick in) to do partial Roth conversions. You might pay a little tax now, but you could save a lot in the future.

2. Tax-Free Accounts – The “Never Pay Again” Bucket

Enter the Roth IRA and Roth 401(k). Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. Free. As in no taxes owed.

The Good: These accounts are golden in retirement. No RMDs for Roth IRAs (at least under current rules), and tax-free growth can help with managing income thresholds for things like Medicare premiums and Social Security taxation.

The Catch: Income limits can restrict Roth IRA contributions. And converting a traditional IRA to a Roth means you’ll owe tax on the converted amount—today.

Strategy Tip: Diversify across Roth and traditional accounts during your working years. And don’t ignore Roth 401(k)s—they’re not subject to income limits like Roth IRAs.

3. Taxable Accounts – The “Flexible Friend”

These are your regular brokerage accounts. No tax deduction going in, and no tax deferral—but they do offer one thing the other accounts lack: flexibility.

The Good: Long-term capital gains are taxed at lower rates than ordinary income. You also get to control the timing of your taxable events—unlike with RMDs. Plus, qualified dividends get favorable tax treatment.

The Catch: Interest income is taxed annually. And frequent trading can result in tax inefficiency.

Strategy Tip: Invest tax-efficiently—think index funds, ETFs, and municipal bonds (if they make sense for your bracket). And remember: holding investments for more than a year usually means a lower tax bill.

The Real Magic? Coordination

Most retirees don’t fail because they ran out of money. They stumble because they didn’t plan for the tax traps along the way. Social Security benefits can become taxable. Medicare premiums can spike. A large RMD can push you into a higher bracket.

The goal isn’t to minimize taxes in any one year—it’s to minimize them over your lifetime.

This means thinking about:

• When to take Social Security

• When to do Roth conversions

• How to draw down accounts in a tax-efficient order

• How to stay below income thresholds that trigger penalties or higher taxes

Final Thoughts

Tax planning for retirement isn’t about finding loopholes or dodging Uncle Sam. It’s about being smart, strategic, and intentional.

And remember: a well-balanced tax stool is a stable one. If all your money is tied up in tax-deferred accounts, you could face a tax time bomb. But by spreading your savings across different tax buckets, you give yourself flexibility—and options. And in retirement, options are priceless.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.