6 Overlooked Tax Planning Strategies for Retirees
When most people think about retirement, they focus on saving and investing, but not on how they’ll manage taxes in retirement.
That’s a problem. Because how you withdraw and distribute your wealth matters just as much as how you built it.
Not to mention that taxes are most people’s biggest lifetime expense (along with housing). That’s why thoughtful, proactive tax planning is a must.
The goal isn’t to avoid taxes (because it’s not possible), but to ensure you’re not paying more than necessary.
Here are six often-overlooked strategies that can help retirees lower their lifetime tax bill.
1. Strategic Roth Conversions During Low-Income Years
Retirement often opens a tax planning window between when you stop working and when required minimum distributions (RMDs) begin at age 73.
During this time, your income may be low enough to convert pre-tax IRA dollars to Roth IRAs at a reduced tax rate.
You would do this if you think that you’ll pay tax on those dollars at lower rates now than in the future.
Why it matters:
Lowers future RMDs and taxes on Social Security
Creates tax-free income later in retirement
Increases flexibility in how you manage future tax brackets
Tip: Use non-IRA assets (like a brokerage account) to pay the conversion tax for maximum benefit.
2. Managing Capital Gains & Social Security Election to Preserve ACA Subsidies
If you're retiring before age 65 and using an ACA marketplace health plan, your eligibility for premium subsidies is directly tied to your Modified Adjusted Gross Income (MAGI). What many retirees overlook is that MAGI includes more than just traditional income, it also counts things like capital gains, Roth conversions, and even a portion of Social Security benefits.
This creates a unique planning challenge: decisions like selling appreciated investments or starting Social Security too early can unintentionally push your income over key thresholds, causing you to lose valuable ACA subsidies or pay significantly more for health coverage.
Why it matters:
Selling assets from a brokerage account can trigger capital gains that stack on top of your ordinary income.
Starting Social Security benefits early increases your taxable income and may reduce your subsidy eligibility.
Even small changes to your MAGI can cause big jumps in health insurance premiums or phaseouts of other tax benefits.
Tip: Coordinate the timing of Roth conversions, investment sales, and Social Security elections to keep your income within ACA-friendly thresholds and avoid unnecessary subsidy reductions or tax surprises.
3. Asset Location: Where You Hold Investments Matters
Tax efficiency isn’t just about what you invest in, it’s about where those investments reside.
That’s where asset location comes in.
Why it matters:
Keep tax-inefficient assets (like bonds or REITs) in traditional IRAs.
Put high-growth assets in Roth IRAs to maximize tax-free compounding.
Use brokerage accounts for tax-efficient stock funds like ETFs and liquidity.
Result: More after-tax income with the same level of investment risk.
4. Optimize Charitable Giving With Tax-Smart Strategies
If philanthropy is part of your retirement goals, consider smarter giving methods that offer bigger tax benefits. I see people giving cash or writing checks to charities far too often, when there are better assets to gift that will maximize your gifting.
Why it matters:
Gift appreciated stock to a Donor-Advised Fund (DAF) instead of cash to avoid capital gains taxes and get a tax deduction.
Use Qualified Charitable Distributions (QCDs) from your IRA once you reach RMD age (currently 73)
These count toward your RMD but are excluded from your taxable income.
Tip: Consider bunching several years’ worth of giving into one year using a DAF to exceed the standard deduction and maximize itemization.
5. Annual Gifting & Reverse Gifting: Strategic Family Wealth Transfers
Gifting to loved ones isn’t just generous, it can be highly strategic from a tax perspective!
Why it matters:
Use the annual gift tax exclusion (currently $19,000 per spouse per recipient in 2025) to reduce the size of your estate without filing a gift tax return.
While the federal estate tax exemption rests at $15M per person (holy smokes, that’s a lot), states like WA and OR have much lower estate tax exemption thresholds ($2.193M and $1M per person, respectively).
“Reverse gifting” can also unlock tax savings:
If your adult children or grandchildren are in a lower capital gains tax bracket, gifting them appreciated stock allows them to sell at a lower or even 0% tax rate, rather than you realizing gains in your higher bracket.
Conversely, reverse gifting stock to a parent who is not expected to owe estate taxes allows the parent to hold the assets until they pass, triggering a step-up in cost basis, and potentially eliminating capital gains for the family.
Tip: Coordinate with your financial planner and tax advisor to avoid running into the kiddie tax or exceeding income thresholds that could backfire.
6. Take Advantage of Senior Property Tax Exemptions
If you, or someone you know, is over age 61, has a modest income, and owns a home in Washington State, you may qualify for a senior property tax exemption that can significantly lower your annual tax bill.
A client of mine reduced their annual property tax from $6,500 to just $1,600, all because they qualified under the senior exemption program. They were spending out of their bank account for a year so they could show low enough income to receive the exemption.
Why it matters:
Washington’s Senior Citizen Property Tax Exemption freezes your home's assessed value and exempts you from excess levies and part of state school taxes, based on your income.
Approval hinges on being at least 61, owning and occupying your home, and staying below the disposable income threshold (counting Social Security, investments, etc.).
The exemption lasts six years before requiring renewal, subject to income verification.
Tip: Work with a financial planner or your county’s assessors office to verify eligibility, prepare documentation, and handle renewal paperwork—assessor’, especially if you're newly retired or your income situation has changed.
Putting the Pieces in Place
Taxes don’t stop when your paycheck does, and the IRS doesn’t give do-overs in retirement.
By proactively using these six strategies, you can smooth out your retirement income, reduce tax drag, and even transfer wealth more efficiently to your heirs or causes you care about.
Have any questions about what you’ve read? Let’s talk about them!
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