5 Tax-Efficient Retirement Strategies to Save Big

When you picture retirement, you’re probably thinking about the freedom it brings—more time, more flexibility, and fewer obligations. Taxes usually aren’t part of the daydream. For most people, tax planning becomes a short-term focus in late winter, and once the return is filed, it disappears until next year.

But if you’re a successful business owner, corporate executive, or affluent retiree, taxes rarely stay simple. In retirement, the way you withdraw money from different accounts at different times can have a big impact on what you keep. This is why staying proactive matters. With the right tax-efficient retirement strategies, you can often reduce unnecessary taxes and create a smoother, more predictable income plan.

Below are five ways to help you save on taxes in retirement and preserve more of the wealth you’ve built.

1. Limit Your Exposure to the 3.8% Medicare Surcharge Tax

If you have a higher income and have investment income, you should be aware of the 3.8% Medicare surcharge tax. This tax applies to individuals and couples whose earnings exceed certain limits, meaning they contribute more to Medicare and help support the healthcare system for everyone. Here’s how it works:

If you’re single and make more than $200,000, or if you’re married and together make more than $250,000, this 3.8% tax may apply to you. These income limits are based on your Modified Adjusted Gross Income (MAGI)—that’s your usual income with some deductions added back in, such as tax-free foreign income, IRA contributions, and student loan interest. 

The surcharge tax affects what you earn from investments such as stocks, bonds, and real estate (which includes interest, dividends, annuities, gains, passive income, and royalties). The IRS calculates this tax on whichever is less: your total net investment income or the amount by which your income goes over those $200,000 or $250,000 thresholds.

If your MAGI is near or above the thresholds, there are steps you can take to limit your exposure. First, you will want to review the tax efficiency of your investment holdings. It may be worthwhile to move less efficient investments into tax-deferred accounts and capitalize on tax-loss harvesting. Other moves you can make include investing in municipal bonds, which have tax-free interest, and taking capital losses to offset gains. Installment sales can spread out large gains and minimize your adjusted gross income, and real estate like-kind exchanges can also defer gains and their taxability.

2. Utilize Roth IRA Conversions

Distributions from Roth IRAs are tax-free, so they are a great tool to have in retirement. However, many people cannot contribute directly to a Roth IRA because of income limitations. Instead, you have to convert traditional IRA funds to a Roth account by paying the related income taxes. You can take advantage of low-income years, such as when you have stopped working but are not yet collecting Social Security, to convert your funds to a Roth IRA so you’ll have tax-free income later. 

It is important to be mindful of tax brackets when you do conversions so you don’t inadvertently push yourself into higher tax rates. As we mentioned above, be sure to consider the impact of the 3.8% Medicare surcharge tax. Another crucial item to be aware of is the Income-Related Monthly Adjustment Amount (IRMAA), which increases your Medicare premiums if your income is above a certain limit. For 2026, if your Modified Adjusted Gross Income (MAGI) is over $109,000 as an individual filer or $218,000 as a couple filing jointly, your premiums will increase. The higher your income, the higher the premium. This is where careful planning can help you manage these additional costs and make the most of your IRA conversions—without unexpected expenses.

3. Take Advantage of the 0% Rate on Long-Term Capital Gains

If the Medicare surcharge tax is irrelevant to you because your income is lower, then you may be able to take advantage of the 0% long-term capital gains rate. Profits on the sales of assets owned over a year are tax-free if your 2026 taxable income is below $49,450 for singles or $98,900 for married couples filing jointly. Once you exceed those thresholds, long-term capital gains are taxed at 15% until your taxable income for 2025 gets above $545,400 for singles or $613,700 for couples, at which point the tax rate goes up to 20%.

Claiming more deductions or making deductible IRA contributions can help keep your taxable income within the 0% capital gains tax range while also providing their usual tax benefits. However, you will want to be strategic about taking tax-free gains as they can raise your adjusted gross income and affect the taxability of your Social Security benefits. Also, taking those gains may incur state tax liabilities as well.

4. Be Strategic About Inherited IRAs

The IRS clarified rules for inherited IRAs in July 2024, addressing concerns about the 10-year rule introduced in 2020. Non-spousal beneficiaries must now take required minimum distributions (RMDs) annually if the decedent had already started RMDs. Additionally, the inherited IRA must be completely depleted by the end of the 10th year following the account holder’s death.

Key exceptions to the 10-year rule remain unchanged. These include surviving spouses, minor children, disabled or chronically ill beneficiaries, and those less than 10 years younger than the deceased. These groups can continue to use the stretch IRA approach, taking distributions over their life expectancy.

For beneficiaries of account holders who passed away before their RMD age (currently 73), there is more flexibility. In these cases, beneficiaries are not required to take RMDs in years 1 through 9, allowing for strategic tax planning during the 10-year period.

Being strategic about timing withdrawals is crucial to managing tax implications and minimizing overall tax liability.

5. Donate Effectively

If you are charitably inclined, one of the best ways to save on taxes is through donations. Bear in mind, rules regarding deductibility of charitable contributions have changed significantly.

Starting in 2026, due to the One Big Beautiful Bill Act (OBBBA), charitable contributions less than 0.5% of your adjusted gross income (AGI) are no longer deductible as itemized deductions, though any excess over this floor level will be deductible. Non-itemizers may deduct up to $1,000 in cash contributions (married couples filing jointly may deduct up to $2,000).

High-income donors who itemize are capped at 35% for charitable deductions, even if the taxpayer(s) is in a high federal tax bracket.

Another strategy to consider is the use of a charitable lead annuity trust or a donor-advised fund, which allow you to take an up-front write-off which can help offset other income, such as from a Roth IRA conversion or withdrawal from an inherited IRA. Qualified charitable distributions (QCDs) may also be effective tools to offset required minimum distributions (RMDs) from IRA accounts.

Tax-Efficient Retirement Strategies Built Around You

For high earners and experienced investors, a successful retirement hinges on how well wealth is converted into sustainable, long-term income. The right tax-efficient retirement strategies can help reduce unnecessary taxes and preserve more of your assets over time. But these decisions are rarely simple. Your income sources, business interests, required distributions, investment accounts, and timing all play a role in what works best.

This is why I encourage you not to approach retirement tax planning in isolation. Partnering with an experienced financial advisor can help you evaluate the tradeoffs, coordinate the details, and build a strategy which supports your long-term goals with confidence.

If you don’t already have a trusted advisor, I’d welcome the opportunity to connect. My team at The Rosamond Financial Group and I can help you build a personalized plan designed to protect your wealth and support the lifestyle you want in retirement. Take the first step toward your ideal retirement by calling my office at 830-798-9400 or emailing solutions@rosamondfinancialgroup.com.  

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.