I'm a CPA: How Retirees Can Lower Taxes on Social Security and Retirement Accounts
Retirement income gets taxed in ways that would make your head spin. Social Security, 401(k)s, IRAs, taxable accounts — each one plays by different rules, and the wrong move can cost you thousands annually. Fortunately, most retirees have more leverage than they realize.
We tapped two certified public accountants (CPAs) to break down the strategies that actually work. Here's how to stop hemorrhaging money to taxes and keep more of what you've earned.
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Plan Around Required Minimum Distributions
Required minimum distributions are mandatory annual withdrawals from your 401(k) and IRA beginning at age 73, according to the IRS. The amount is based on your account balance, and it all counts as taxable income.
Here's the opportunity: "The most valuable years in a retiree's tax life are between the last paycheck and the first required withdrawal," according to George Dimov, CPA and the founder and CEO of Dimov Audit. You can use that window to lower your tax bracket strategically.
Most retirees follow the conventional wisdom of draining taxable accounts first while letting their IRA grow. But that's backwards for many.
Take a couple age 65 or older: they can have $47,500 in income tax-free. The next $100,000 is taxed at 10% to 12%. If they take little or no taxable income before RMDs begin, their IRA keeps compounding — but their eventual withdrawals could push them into the 22% bracket.
While retirement accounts get most of the attention in retirement planning, Zachary Sahar, CPA at Capital Tax, noted the importance of also managing taxable accounts. “Interest-producing investments, appreciated stock and tax-advantaged retirement assets can all receive very different tax treatment," he said.
Delay Social Security
Although you can receive Social Security at age 62, you won’t get your full benefit unless you wait until age 67. According to the Social Security Administration, delaying beyond that increases your benefit by 8% per year up until age 70. But as Dimov explained, delaying provides benefits beyond a larger monthly check.
“The real prize is that while you're not collecting, your benefit isn't sitting in the formula that decides how much of it gets taxed,” he said, referring to the tax retirees pay on up to 85% of their benefits once their income reaches a certain level. Fewer years of benefits in the tax formula means a smaller tax bill overall.
Convert to a Roth While You're in a Low Bracket
A Roth conversion lets you move money from a traditional IRA or 401(k) into a tax-free Roth account. You'll owe taxes on the conversion that year, but withdrawals are tax-free forever. There's a five-year waiting period before withdrawals clear, but the long-term math works when you do it early.
"Partial Roth conversions can allow retirees to recognize income while they're in a relatively low bracket and reduce future taxable IRA balances," Sahar said.
That "sweet spot" between leaving work and hitting age 73 (when RMDs begin) is when conversions make the most sense.
There's also a protection angle here: early conversions can prevent what Dimov calls the "widow's penalty." When a spouse dies, the surviving spouse loses the joint tax brackets — but keeps the same income.
"A couple sitting comfortably in the 12% bracket can become a widow in the 22% bracket the following year, spending exactly the same money," Dimov warned. Strategic early conversions can soften that blow.
Give Directly From Your IRA
A qualified charitable distribution (QCD) lets you donate directly from your traditional IRA once you hit 70½. The IRS counts it toward your required minimum distribution, but it doesn't count as taxable income.
Charitable donations are typically an itemized deduction — which doesn't help most retirees. "Most retirees take the standard deduction," Dimov noted. According to him, although the IRS has announced that you’ll be able to claim up to $1,000 in donations beginning in tax year 2026 ($2,000 for joint filers), a QCD removes the money before it ever gets counted.
Timing matters. "Give first, then take the rest," Dimov advised. Your first IRA withdrawal each calendar year counts toward your RMD, so donate first, then withdraw whatever else you need.
Claim Your Enhanced Senior Deduction
If you're 65 or older, you have access to an enhanced standard deduction through 2028. Sahar said, "It can be as much as $6,000 per qualifying individual, or $12,000 for an eligible married couple."
It phases out at higher income levels, which is why "retirees should look at their entire income picture before making a large IRA withdrawal or Roth conversion," he explained.
The Bottom Line
The CPAs we spoke with all emphasized the same point: retirement tax planning works best when you look at your Social Security timing, your RMD strategy, your Roth conversions and your charitable giving as an interconnected system. Get these pieces right in your early retirement years, and you could save tens of thousands over decades.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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