By Henry Worried about how taxes will affect your retirement? You’re definitely not alone. A recent survey found that about two-thirds of retirees wish they’d paid more attention to how taxes impacted their savings when they were younger.
By planning ahead with tax strategies, you can keep more of your money and enjoy a more secure retirement. These six tips will help you reduce your tax bill and make the most of your hard-earned savings.
1. Use Roth IRAs for Tax-Free Retirement Income
If you’re still in the early years of your career or expect to be in a higher tax bracket when you retire, a Roth IRA can be a great option. With a Roth IRA, you pay taxes upfront on your contributions, but your money grows tax-free, and you won’t have to pay taxes on withdrawals when you retire. Plus, Roth IRAs don’t have required minimum distributions (RMDs), unlike traditional IRAs.
Many people start out in a lower tax bracket and later find themselves in a higher one during retirement. By contributing to a Roth IRA, you’re setting yourself up for tax-free withdrawals, which can be a huge advantage.
Contribution limits for 2024 and 2025 are:
2024:
- Single or head of household: $146,000-$161,000
- Married filing jointly: $230,000-$240,000
- Married filing separately: $0-$10,000
2025:
- Single or head of household: $150,000-$165,000
- Married filing jointly: $236,000-$246,000
- Married filing separately: $0-$10,000
If your income is above these limits, you won’t be able to contribute to a Roth IRA directly, but there are still other ways to get the benefits of a Roth.
2. Consider a Roth IRA Conversion
Already have a traditional IRA? You might want to think about converting some of it into a Roth IRA. This strategy lets you diversify your tax situation, which can be helpful when you retire. You’ll pay taxes on the amount you convert, but after five years, you can make tax-free withdrawals.
Roth IRAs can also help reduce taxes for your heirs. Traditional IRAs require RMDs, but Roth IRAs don’t. This means your beneficiaries can avoid paying taxes on the money they inherit right away.
3. Open a Spousal IRA to Boost Contributions
If your spouse isn’t working or earning much, you can still help them build their retirement savings by opening a spousal IRA. This lets you contribute to an IRA for your spouse, even if they don’t have earned income. Like your own IRA, your spouse can put in up to $7,000 a year (for 2025).
This is a great way to double your retirement savings as a couple. Many people miss out on this, so make sure you take advantage of it if you can.
4. Consider Municipal Bonds for Tax-Free Interest
Bonds are usually taxed as ordinary income, but municipal bonds—issued by state or local governments—are exempt from federal taxes. If you buy municipal bonds from your own state, you might even avoid state and local taxes too. This can be a great option if you’re in a higher tax bracket.
However, municipal bonds might not be the best fit if you’re subject to the alternative minimum tax (AMT), so it’s worth talking to a financial advisor first.
5. Use Life Insurance for Tax Benefits
Life insurance is usually for protecting your loved ones, but the right policy can also help with tax planning. The death benefit from a life insurance policy is paid out tax-free to your beneficiaries. Plus, with permanent life insurance policies, like whole life or universal life, you can build cash value that grows tax-deferred.
If you take a loan or withdraw money from the policy’s cash value, it’s usually tax-free (up to what you’ve paid in premiums). This can be a helpful option if you need access to money in retirement but want to avoid tax penalties.
Just keep in mind that if you borrow too much from the policy or take out too much cash, it could reduce the death benefit for your heirs.
6. Give to Charity and Lower Your Taxes
Donating to charity is a meaningful way to give back—and it can also lower your tax bill. Here are some ways charitable giving can help reduce taxes:
Charitable Remainder Trusts (CRTs): You can donate assets to charity and still receive income from them during your lifetime. After you pass, the remaining assets go to the charity. The trust sells assets tax-free, which can help reduce your taxable income.
Charitable Gift Annuities: When you donate assets to charity, you can receive a stream of income for life in return. You’ll also get an immediate tax deduction, which can reduce your current tax burden.
Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can donate up to $108,000 from your IRA directly to a charity each year without paying taxes on it. This can count toward your Required Minimum Distribution (RMD) and lower your taxable income.
Putting It All Together
To make the most of your retirement savings and reduce your taxes, it’s a good idea to work with a financial advisor. They can help you create a tax-efficient retirement strategy and guide you through the best ways to withdraw money once you retire.
Taxes may seem complicated, but with the right plan, you can keep more of your savings for the things that matter most to you in retirement. So, why not take these steps now and start planning for a tax-friendly future?